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Last Updated: Friday, 20 July 2007, 10:44 GMT 11:44 UK
China rates rise to cool economy
Chinese shopper
Chinese inflation is at its highest for nearly three years
China has raised interest rates to keep inflation in check and stop the world's fourth-largest economy from overheating.

The People's Bank of China (PBC) ordered an increase of 0.27% of a point in commercial banks' benchmark one-year deposit and lending rates.

The increases will take effect on 21 July, the bank said.

The one-year benchmark deposit rate will move to 3.33% from 3.06%, while the one-year lending rate will rise to

6.84% from 6.57%.

The move comes a day after data showing that China's economy outstripped analysts expectations during the second quarter, growing by 11.9% from a year before.

On Thursday, the government said it would "improve macro controls" to rein in the economy.

The rapid growth has pushed inflation to a 33-month high of 4.4% for the year to June.

A boom in production, fuelled by strong exports and investment, is contributing to the inflationary risks the country now faces.

'Far from enough'

The central bank has now raised interest rates five times since April 2006.

Zhang Yongjun, economist at the state information centre in Beijing said: "I think the rate rises could curb the rapid investment growth and credit expansion to a certain degree.

"But it's far from enough. The current interest rates are still low and real deposit rates are in negative territory."

Others said the move was widely expected, but would not be enough to curb inflation.

Lin Songli, an analyst at Guosen Securities in Beijing added: "It will not completely ease inflationary pressure in the second half, because current fast CPI growth is mainly due to the short supply of pork and other foodstuffs."

The PBC said the rate adjustment would help to "guide reasonable growth of credit and investment, adjust and stabilise expectations about inflation and maintain basic stability of general price levels".




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