China's PBOC raises rediscount, relending rates

China's central bank raised rediscount rates for banks for the first time in two years and also raised the one-year relending rate, in yet another indication that bank is serious about tightening policy.

People's Bank of China raised the rediscount rate to 2.25 percent from 1.8 percent, and the relending rate to 3.85 percent.

The rediscount rate is the rate of interest charged to member banks when they borrow from the central bank.

However, the move is mostly symbolic as most banks rarely approach the central bank for loans as most banks in China have enough liquidity. But the move indicates that the banks should slow down lending.

China has been trying to stem the increase in lending in the country. It has raised the reserve ratio for banks thrice in the past two months, which is generally used as a signal for banks to slow lending and indicate its seriousness about policy tightening.

PBOC also raised interest rates over the weekend, in yet another attempt to control money supply and contain inflation, which has become a serious concern for China's economic growth.

China's policy makers are battling a 28-year high inflation rate at 5.1 percent, as rising food prices threaten to soar higher.

Some economists believe that the PBOC believes that interest rate hikes are the best way to contain inflation.