China's central bank Tuesday announced a rise of its benchmark one-year lending and deposit rate by 0.25 percentage points effective from Oct. 20, a move widely seen as the government's action against inflationary pressure.

The People's Bank of China (PBOC) said in a statement on its website that the one-year deposit rate will rise from 2.25 percent to 2.50 percent, and the one-year lending rate will increase from 5.31 percent to 5.56 percent.

 

The rise, the first over the past three years, had not been anticipated and could be related to the impending September statistics and the third quarter statistics, said Jiang Chao, an analyst with Guotai Junan Securities.

 

The CPI (Consumer Price Index), a key gauge of inflation, may maintain its high level in September, Jiang said.

 

The rate hikes are the first in three years. The central bank last hiked rates on Dec. 21, 2007.

 

The benchmark interest rate has been cut four times since the global financial crisis.

 

Li Daokui, a member of the PBOC's monetary policy committee, said statistics showed China's economy has been bottoming out from the accelerated slump at the beginning of this year, but prices of goods remain at a high level, attracting attention from policy makers.

 

Further, policy makers have to seek a balance between economic growth, restructuring and stable prices, Li said.

 

"Judging from the move, worries about soaring prices overwhelmed jitters on economic growth, as is the main reason for the interests rate hike. Negative interests rate (higher CPI increases than deposit interests rate) is also another reason," Li said.

 

Liu Yuhui, an expert with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said the interests rate hike this time is related to expectations of inflation as the negative interests rate has continued for seven months.

 

China has been experiencing hikes in prices of agricultural products, urban services like home rents and catering, Liu said.

 

"We believed it was caused by soaring labor costs, also related to issue of currencies and soaring living costs in cities," Li said.