Chinese Premier Wen Jiabao said he was confident that government measures would succeed in curbing soaring food and property prices, state media reported Monday.
"I believe we can keep prices at a reasonable level through our efforts," Wen said in an interview with China national radio. "As a major leader of the government, I have the responsibility, and I have the confidence, too," he said, speaking after the central bank announced its second hike in base interest rates in two months.
Wen conceded that policies introduced in 2010 to limit property price rises were "not well implemented" and said the government planned to develop more affordable housing in 2011.
It would also try to stem the flow of credit to property speculators, he said. "I'm confident we can make housing prices return to a reasonable level through these measures," Wen said.
The People's Bank of China announced late Saturday that it would raise the benchmark one-year lending rate by 25 basis points to 5.81 percent. The central bank also raised the one-year deposit rate by 25 points to 2.75 percent after its hiking of interest rates in October for the first time since 2007.
Chinese stocks fell by around 2 percent Monday with analysts saying the plunge was caused mainly by anticipation of further government measures to tackle inflation. The key Shanghai Composite Index, which tracks shares traded in domestic and foreign currencies, lost 1.9 percent to close at 2,781.4.
The official China Daily newspaper quoted Li Daokui, a central bank official responsible for monetary policy, as saying the weekend interest rate rise was announced over the Christmas holiday to "avoid overreaction" from global markets. Li said the rise was mainly aimed at "tightening the money supply" and was the "best way to curb inflation."
The central bank has also raised the reserve ratio for commercial banks six times in 2010 in a bid to curb lending.
A government circular issued Sunday ordered local officials to "improve efforts to stabilize prices and ensure abundant supply of essential commodities." It said officials at all levels should crack down on "price speculation and related market manipulation" and tackle "violent and mafia-style crimes, property embezzlement and economic crimes." consumer price inflation stood at 5.1 percent in November, a 28-month high.
At an economic conference in early December, the government said it planned to move from a "relatively loose" to a "prudent" monetary policy in the new year.
It is winding down a two-year, $586-billion economic stimulus package that was introduced in 2008 in response to the global economic crisis.
The world bank has forecast annual economic growth in China of 10 percent for 2010 and 8.7 percent in 2011. Analysts said they expected inflation to continue at around 4 to 5 percent in 2011.