The People's Bank of China is to raise interest rates for the sixth time this year to battle surging prices, as the yuan rose to new heights against the dollar.

The benchmark one-year deposit rate will be raised by 27 basis points to 4.14 per cent — less than the usual 72 basis points.

The lending rate will be increased 18 basis points to 7.47 per cent.

Consumer price inflation in China rose to an 11-year high of 6.9 per cent last month.

The central bank said that the decision was prompted by "domestic prices facing upward pressure and the increasing complexity of the international environment". It added that it wanted "to guide public inflationary expectations".

It noted: “The hike will help to prevent the economy from growing too quickly into overheating and structural inflation developing into overall inflation."

The increase came as the yuan edged close to its peak since it was revalued against the dollar in July 2005.

The US Treasury argues that the yuan is undervalued, giving Chinese exporters a competitive advantage.

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