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Updated Wednesday, April 6, 2011 0:04 am TWN, By Soo Ai Peng and Tony Zhou, Reuters

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China ups rates for 4th time since October; March inflation may be higher than expected

SHANGHAI/BEIJING China's central bank increased interest rates on Tuesday for the fourth time since October, raising suspicions that data next week may show inflation rose more than expected in March.

China's rate rise adds to six official increases in bank reserves since October and underlines Beijing's determination to clamp down on inflation, which leaders have declared as their most important task this year to keep the world's fastest growing major economy on track.

The increase comes before the European Central Bank is expected to raise its rates on Thursday for the first time since the global financial crisis, showing how inflation is rising to the top of the global policy agenda.

“The March inflation figures must be very high,” said Xu Biao, economist with China Merchants Bank in Shenzhen.

“It is an aggressive move, and the central bank is acting more aggressively than the market had expected. The latest interest rate rise, although at only one quarter point, may hurt investor confidence and the real economy quite significantly. More importantly, it is not the end of China's monetary policy tightening.”

Benchmark one-year deposit and lending rates were lifted by 25 basis points to 3.25 percent and 6.31 percent respectively, the People's Bank of China said in a statement on its website.

The rises take effect from April 6, when financial markets in China reopen following public holidays on Monday and Tuesday.

China is due to report the March consumer price index on April 15. Economists expect the data to show that consumer inflation rose to 5.1 percent in March, matching a 28-month high seen in November.

Inflation was 4.9 percent in February, unchanged from January. Beijing is aiming for inflation to average 4 percent this year.

“We did expect a rate hike in April so it's not a complete surprise,” said Allan von Mehren, chief analyst at Danske Bank in Copenhagen.

“They are raising rates to stem the inflationary pressures in the economy. We expect another two hikes of 25 basis points each this year. We are already seeing a slowdown in the Chinese economy but they need to raise rates a couple more times.

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