China raises interest rates second time

 Rates were raised by 25 basis points to 5.81 per cent and deposit rate by 25 basis points to 2.75 per cent. The move came after Beijing said earlier in December it was switching to a “prudent” monetary policy, from its earlier “moderately loose” stance.
Analysts said the change of wording, along with a recent pledge by top leaders to make inflation fighting a top priority for 2011, could pave the way for more interest rate increases and lending controls.

The central bank said on Friday it will deploy a range of policy tools to head off inflationary pressures and asset bubbles. To tame price pressures, China raised interest rates on October 19 for the first time in nearly three years.

Policy tightening also signals the government’s confidence that the world’s second-largest economy is on solid ground, even as the US and European recoveries remain fragile. Chinese stock markets have shed nearly 10 per cent since mid-November on concerns the government would ratchet up its monetary policy tightening in face of rising inflation.

China has also officially increased banks required reserve requirements six times this year and restricted lending by them.

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