Middle East turmoil and Japan crisis add to pressure on prices

BEIJING - The central bank raised interest rates on Tuesday, for the second time this year, to tackle inflation and asset bubbles in the world's fastest-growing major economy.

The People's Bank of China said it would raise one-year deposit and lending rates by 25 basis points, taking the deposit rate to 3.25 percent and the lending rate to 6.31 percent. The new rates take effect from Wednesday.

Economists said the move reflected China's increasing worries over inflation, as the turmoil in the Middle East and the earthquake and tsunami in Japan have made it more difficult for the government to curb surging prices.

The move, announced on the last day of the three-day Qingming Festival or Tomb Sweeping Festival, is the fourth time interest rates have risen since October.

"The major purpose of the interest rate hike is to fight inflation," Zhuang Jian, a senior economist with the Asian Development Bank, said.

"Research shows that the consumer price index (CPI) for last month may reach another record high."

But he said the benchmark one-year deposit rate still lags behind the CPI.

The political unrest in the Middle East and the Japan crisis increased inflationary pressure in China, forcing the central bank to act, Zhuang added.

The CPI rose 3.3 percent year-on-year last year, exceeding the government's 3 percent target.

Consumer prices rose 4.9 percent in February, also surpassing the government target of 4 percent.

Many analysts predict that the CPI figure will increase to more than 5 percent in March.