China to Raise Interest Rates

In a surprising move, The People's Bank of China announced Tuesday that it would raise interest rates for the first time in three years. The benchmark deposit and lending rates will go up by 0.25%.

According to a report in the Financial Times, the one-year lending rate will rise from 5.31% to 5.56% on Wednesday, and the one-year deposit rate will rise to 2.5% from 2.25%. This is the first reversal of rates since the numerous cuts the central bank had put in place between September and December of 2008, and the first rate increase since December of 2007.

China had funded a massive economic stimulus to counter the financial crisis, and has been concerned recently with keeping its burgeoning economy from overheating. Its action fuels speculation that third-quarter growth and inflation numbers for September, to be released later this week, will be higher than expected. In August, inflation hit 3.5%, which tops the government's target for the year of 3%.