- Associated Press - Tuesday, April 5, 2011

BEIJING (AP) — China raised key interest rates Tuesday for the fourth time since October as it tries to dampen high inflation.

The People’s Bank of China, the country’s central bank, said the quarter-percentage-point increase lifts the one-year lending rate to 6.31 percent and the rate for one-year bank deposits to 3.25 percent.

The series of rate hikes reflects concerns about overheating and excess liquidity in the Chinese economy that are driving up prices, especially of food.

China‘s consumer prices rose 4.9 percent in February, driven by an 11 percent jump in politically sensitive food costs, which account for half or more of household spending among the millions of Chinese who have seen little benefit from three decades of economic reform.

Beijing is using gradual increases in interest rates and bank reserve levels to stanch a flood of lending that helped China rebound quickly from the global financial crisis but now is fueling price rises.

Analysts say a bank lending boom is partly to blame for the overheating, prompting measures to curb the credit boom that is pushing up real estate and stock prices.

Those moves appear to be gaining traction, although economists say more rate increases are needed and it will be months before the effect is seen.

Mark Williams of Capital Economics said the rate increase was expected but could still spark some jitters about the effect of economic tightening on growth. With inflation leveling out and the economy beginning to slow, China likely will rely on bank reserve requirements rather than interest rate increases to guide the economy, Mr. Williams said.

Tuesday’s changes “are in line with the gradual policy tightening that has been under way over the last few months and will not do much to slow the economy,” Mr. Williams said in a note to journalists.

The central bank said bank lending in February fell 26 percent from the same month last year to 535.6 billion yuan ($81.5 billion).

China‘s banks lent just more than 1 trillion yuan ($153 billion) in January. That was after their 2010 lending rose to nearly 8 trillion yuan ($1.2 trillion), overshooting the official target of 7.5 trillion yuan.

Analysts say Chinese leaders acted too slowly in heading off inflation after they deflected the 2008 crisis and growth quickly returned to normal levels. The government has set a 4 percent inflation target this year, but private sector analysts say consumer prices could rise by up to 6 percent.