Domestic food prices soared this year, driving inflation to rise by 5.1 percent in November, the fastest increase in more than two years and above Beijing's full-year target of three percent, official data showed.

In response China's central bank on Saturday raised interest rates for the second time in less than three months as authorities stepped-up efforts to curb borrowing, rein in property prices and tame inflation.

Speaking on China National Radio Wen said: "The recent rise in prices across China has actually made life even more difficult for people on low and medium incomes."

But he stressed that thanks to government intervention "we are fully able to control the general level of prices".

Ever fearful of inflation's historic potential to spark unrest in China, the government has ordered a range of steps to ensure supplies of key goods, offer financial help to the needy and vowed to impose price caps if necessary.

Responding to questions from listeners Wen said his government was also determined to dampen soaring property prices which have seen moderate and low income people priced-out of many urban areas.

He said the government was committed to boosting housing supply and built 3.7 million housing units this year, with a further 10 million social housing units for rent and sale to be started next year.

"I am confident that through our efforts, housing prices will return to a reasonable level," he said.

To combat inflation and property speculation, China's central bank Saturday raised by 25 basis points (0.25 percentage point) each its one-year lending and deposit rates for the second time in less than three months.

The People's Bank of China has increased the bank reserve requirement ratio six times this year, highlighting the growing anxiety among top leaders over inflationary pressures.

earlier related report
China hikes interest rates for second time in three months
Beijing (AFP) Dec 25, 2010 - China's central bank on Saturday raised interest rates for the second time in three months as authorities ramp up efforts to curb borrowing, rein in property prices and tame inflation.

The People's Bank of China said in a brief one-line statement that it will raise the one-year lending and deposit rates by 25 basis points each. The move takes the rates to 5.81 percent and 2.75 percent respectively from Sunday.

In October, policymakers raised rates for the first time in nearly three years as they resort to stronger measures to try to slow a flood of liquidity which has been fanning inflation and driving up property prices.

Analysts said the latest interest rate hike would be followed by more next year as stability-obsessed leaders step up efforts to calm growing consumer anxiety about rising costs.

"The choice of Christmas Day is a little surprising but I think the market generally expected interest rates to rise," Ken Peng, a Beijing-based economist for Citigroup, told AFP.

"The central bank needed to do this to win credibility to fight inflation."

Ever fearful of inflation's potential to spark unrest, authorities have been pulling on a number of policy levers to rein in consumer prices and cool the red-hot real estate market.

Earlier this month, the central bank ordered lenders for the sixth time this year to keep more money in reserve, effectively limiting the amount of funds they can lend.

Despite these measures, bank lending has remained stubbornly high and property prices have continued to rise, frustrating first-home buyers who feel apartment prices are out of their reach.

Property prices in 70 major cities recorded their third straight month-on-month rise in November, defying Beijing's attempts to cool the red-hot market by hiking minimum downpayments and ordering banks not to provide loans for third home purchases.

Prices were up 0.3 percent last month from October and 7.7 percent higher than a year ago.

The value of new loans issued by China's banks fell in November from October but was still well above forecasts as Beijing struggled to stem the flood of liquidity.

Adding to the Beijing's headaches, the consumer price index, a key measure of inflation, topped five percent in November for the first time in more than two years as food costs soared nearly 12 percent year-on-year.

Further interest hikes had been expected after top leaders pledged earlier this month that China would move from a "relatively loose" monetary policy to a "prudent" one next year.

"We expect two to three rate hikes in the first half of 2011," said Wang Qing, a Hong Kong-based economist for Morgan Stanley.

The central bank said Friday it would use a variety of tools including interest rate hikes and tighter lending restrictions over the next 12 months to curb inflation and prevent an asset price bubble, according to comments by vice governor Hu Xiaolian posted on the bank's website.

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