China has raised benchmark interest rates for the third time since October as Beijing intensifies its battle against stubbornly high inflation.

The benchmark one-year lending rate will rise 25 basis points to 6.06 per cent, the People’s Bank of China said on Tuesday.

The timing of the increase, which came on the final day of the week-long Chinese New Year holiday, appeared to be aimed at avoiding unsettling global and domestic markets. The previous increase was announced on Christmas day.

“For China, the year of the rabbit is the year of inflation,” said Qu Hongbin, greater China chief economist at HSBC. “Given that growth is still strong, Beijing can now fight against inflation single-mindedly.”

China is trying to curb rising prices, particularly for foodstuffs, following a big expansion in the money supply to counteract the effects of the global financial crisis. Goldman Sachs forecasts that year-on-year consumer price inflation in China is likely to have risen to 5.3 per cent in January, up from 4.6 per cent in December.

The rate rise was widely expected and most economists expect at least one further increase in coming months, along with another rise in the amount of deposits China’s biggest lenders must hold on reserve with the central bank.

Last month, the PBoC increased the reserve requirement ratio for China’s biggest banks to 19.5 per cent, its highest level and the eighth such rise since the start of 2010.

Longer-term deposit rates will rise by as much as 45 basis points , reflecting government concern that negative real interest rates are exacerbating inflation.

Jun Ma, China chief economist for Deutsche Bank, said: “In this environment, depositors tend to take deposits out of the banking system and purchase properties, commodities, even consumer goods to hedge against inflation.”

Raising long-term rates will help lock up deposits in the banking system.

“The [Chinese Communist] party is trying to send a signal to people that it is on top of the inflation situation,” said Andy Rothman, chief China economist at CLSA. But he warned that in China “higher interest rates will have no impact on food prices”, which are the primary contributor to consumer price inflation and have been exacerbated by bad weather.

Beijing remains nervous about the political impact of inflation, although the rise in consumer prices lags far behind average annual wage growth of 10 per cent for the past few years.