China central bank will raise benchmark deposit and lending rates by 25 basis points

China said the central bank will raise benchmark deposit and lending rates by 25 basis points, the third increase this year and fifth in the rate of increase in the last round of tightening, as the government continues to struggle against inflation.

The move comes despite recent fears of economic slowdown in China, and indicates the main priority for the authorities is to cool inflationary pressures.

How does China balance control inflation and maintain growth, it is very important for the global economy. Because the world’s second largest economy, China has emerged as a key driver of global growth, given the U.S. and Europe and Japan mired in the recovery continues to suffer due to the earthquake and tsunami of March.

“The increase in interest rates indicate the People’s Bank of China’s determination to tighten monetary policy, in order to control the high inflation rate,” said HSBC economist Ma Xiaoping.

In recent weeks, some analysts in China has sparked fears that the central bank has tightened policy too far, strangling small and medium enterprise loans.

China’s consumer price index rose 5.5% May from a year earlier, the fastest pace in almost three years. Analysts widely expect inflation to rise to 6% paa June, before gradually declining in the second half.

Inflation data will be released on July 15, with a gross domestic product figures will probably show the rate of economic growth slowed in the second quarter.

Mark Williams, an economist at the research firm Capital Economics said the market fears a slowdown would likely be triggered by rising interest rates, even though he disagrees with China on the verge of economic turmoil. “With inflation over 6% in June, focusing on inflation is understandable,” he said.

PBOC said in a statement will raise one-year lending rate to 6.56% from 6.31%, and the one-year yuan deposit rate to 3.50% from 3.25%, effective on Thursday.

The move comes after the PBOC announced an increase in benchmark lending and deposit rates on April 5 and 8 February, after two similar increase in 2010. PBOC also raised bank reserve ratios six times in 2010 and six times this year.