BEIJING (Reuters) - China's central bank increased interest rates for the third time this year on Wednesday, making clear that taming inflation is a top priority even when as the economy slows gently.
Benchmark one-year lending rates will be raised 25 basis points to 6.56 percent, and benchmark one-year deposit rates will be raised 25 basis points to 3.5 percent, the central bank said in a short statement on its website.
Following are analysts comments on the move:
CARL FIRMAN, ANALYST, VM GROUP
"China has done a number of reserve requirement increases over the last several months, however you have climbing inflation, so in real terms you are not making any money by just holding cash.
"A lot of new middle-class Chinese have cottoned on to this, and there is a lot of demand for gold as a store of wealth under these circumstances. Their money is not earning anything, in fact you are getting negative returns now holding cash, whereas you are not getting that holding gold.
"I think China would need to raise rates higher and higher still until we start to see some kind of tapering off of their inflation figures."
CHEN XINYI, COMMODITIES ANALYST, BARCLAYS CAPITAL, SINGAPORE
"We did expect a interest rate hike in the near term and that had been factored in to our view of a slowdown in demand from China, so I do not expect a major impact on prices. The next key event to watch out for in China is the State Council meeting in July which will set the tone for monetary policy in the second half of the year."
FREDERIC NEUMANN, CO-HEAD OF ASIAN ECONOMIC RESEARCH AT HSBC HOLDINGS PLC IN HONG KONG:
"China's inflation battle is almost at an end. Already, there are signs that price pressures are coming off. Today's rate hike may therefore have been the last in the cycle.
"In general, given that the authorities decided to raise rates also shows their confidence in the local economy. Worries over a hard landing on the Mainland are overblown.
"While imbalances exist, growth should hold up in the near-term, and the policy shift, after many months of tightening, will likely shift into neutral shortly."
WANG JUN, ECONOMIST AT GOVERNMENT THINK-TANK CCIEE, BEIJING:
"This is good news for the market, which has anticipated this move. The possibility of another rise in the rest of the third quarter is not big. Inflation could peak soon.
"Whether there will be more interest rate rises in the rest of the year will depend on inflation, if inflation comes down, there will be no need to raise rates. But if prices rebound, there could be further rate rises.
"The government may put more stress on safeguarding economic growth. We have seen this message from recent remarks of Chinese leaders."
QIAO YONGYUAN, ANALYST AT CEBM, SHANGHAI:
"The interest rate rise is largely in line with market expectation, as most institutions expected one interest rate rise in July.
"The move is aiming to curb the quickening inflation, which may climb to as high as 6.2 percent in the year to June.
"I think this will not flag an end of the tightening measures and the central bank could raise interest rate once more for the reminder of the year.
"The government is paying attention to high prices of pork. In addition, other the costs of non-food items also keep rising, which could add more pressure to inflation in the coming months."