China Raises Rates to Slow Inflation and Investment (Nipa Piboontanasawat and Janet Ong)

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China raised interest rates for the third time in 11 months to curb inflation and reduce asset bubbles in the world's fastest-growing major economy.

By Nipa Piboontanasawat and Janet Ong

March 17 (Bloomberg) -- China raised interest rates for the third time in 11 months to curb inflation and reduce asset bubbles in the world's fastest-growing major economy.

The one-year benchmark lending rate will be raised to 6.39 percent -- its highest in almost eight years -- from 6.12 percent, starting tomorrow, the Beijing-based People's Bank of China said today on its Web site. The one-year deposit rate will be increased to 2.79 percent from 2.52 percent. A central bank spokesman confirmed the increases.

Central bank Governor Zhou Xiaochuan is concerned that cash from a record trade surplus is stoking excess investment, raising the risk of accelerating inflation and boom-and-bust cycles in asset prices. Premier Wen Jiabao said yesterday the nation's economic expansion is unstable and environmentally unsustainable.

``The data released in the past week suggest that the economy is not actually slowing and that the government is becoming quite concerned that the economy is disproportionately driven by investment and production,'' Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong, said today. ``The central bank will probably raise interest rates again two more times this year,'' he said.

Fixed-asset investment in urban areas climbed 23.4 percent in the first two months, down from 24.5 percent for all of 2006. China still must act to slow investment, Ma Kai, head of the National Development and Reform Commission, the country's top planning body, said last week.

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