The rise marks the finish of the rate of interest increase cycle for some analysts.

The People's Bank of China yesterday announced the increase in fixed-term deposit and lending rates of 25 basis points are effective today.
The benchmark one-year deposit rate rises to two.5 %, and the one-year lending rate is now at 6.56 %.

The flexible deposit rate remains unchanged at 0.5 %.

No reason for the increase was given in a brief statement on the bank's website. But the central bank reiterated on Monday it will continue with its "prudent" financial owner while focusing on "stability" and "flexibility."

Central bankers have also urged commercial banks to provide more credit facilities to key sectors and weak industries, small and medium-sized enterprises.

Consumer cost index figures for last month are expected to be revealed on July 15.

Despite recent figures showing a slowdown in the economy, the CPI is still expected to come in at over 6 %, compared with four.5 % in May.
Premier Wen Jiabao has said inflation will fall in the approaching months as measures to curb inflation hit home.

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While raising reserve requirements restricts credit from banks, increasing rates of interest is another option to tame inflation.
Vice Premier Wang Qishan has urged lenders to provide support for SMEs.

The Ministry of Industry and Information Know-how said preferential financing arrangements will be granted to small enterprises.

New loans are expected to have topped 550 billion yuan (HK$660 billion) last month, indicating lending reached trillion yuan in the first half. But it is estimated that only 7 % of the loans were granted to SMEs.

James Liu at CIMB-GK Securities Research said loans to SMEs are usually safer than to local governments because of their higher levels of transparency.

Banks are expected to see better profits after the rate increase.
"The hike indicates inflationary pressure is still strong," said CITIC Bank International chief economist Liao Qun.

Bank of America-Merrill Lynch China economist Lu Ting expects the impact of the increase to be limited as the market was alerted by a recent rise in yields of the PBOC's one-year bills.

Bank of East Asia (0023) chief economist Paul Tang Sai-on said the increase shows that Beijing is determined to tame obstinately high inflation, in high property prices.