China's central bank is to raise its main interest rates by a quarter of a percentage point, the third rate hike this year, in the latest round of monetary tightening.
The move comes as the Chinese government places a priority on fighting rising inflation and despite recent fears of an economic slowdown in China.
China's inflation rate reached 5.5% in May, up from April's 5.3% and the fastest pace in nearly three years. Analysts widely expect inflation to top 6% in June before gradually declining in the second half of 2010.
The People's Bank of China, the central bank, said in a statement on its website it will raise the one-year lending rate to 6.56% from 6.31%, and the one-year deposit rate to 3.5% from 3.25%.
The move, which comes into effect on Thursday, comes after the PBOC announced increases in its benchmark lending and deposit rates on April 5 and February 8, following two such hikes in 2010.
The PBOC also raised banks' required reserve ratio, the amount of deposits required by banks to be held in reserve, six times in 2010 and six times so far this year.
Singapore offloads China bank stakes
Singapore's state investment firm Temasek Holdings has sold part of its stakes in two of China's biggest banks for a total of $3.6 billion.
Temasek sold part of its Hong Kong-listed shares in China Construction Bank (CCB) and Bank of China (BOC) - two of China's 'big four' - through two holding units.
Fullerton Financial Holdings Pte Ltd sold shares in Bank of China through placements, raising $2.42 billion. Cairnhill Investments (Mauritius) Pte Ltd and Crescent Investments (Mauritius) Pte Ltd, two other Temasek units, sold shares in China Construction Bank to raise $1.2 billion.
The sales come amid concerns about Chinese banks' debt exposure after China's National Audit Office said local governments owed $1.65 trillion as of the end of 2010, of which a big proportion could go sour.
But that announcement - the first time China has given an overall figure for local government debt - was followed by a warning yesterday from ratings agency Moody's that the debt could have been understated by about $541.6 billion.
The agency also said a lack of a plan to tackle the bad loans meant it could downgrade its outlook for Chinese banks to negative.
According to Temasek's annual report for the year to March 2010, the investment firm held stakes of 4% in Bank of China and 6% in China Construction Bank.
