Expect further increases in interest rates, say analysts

Analysts expect the mainland's central bank to raise interest rates and introduce other tightening measures in the coming months because they view the weekend's rate increase as far from enough to rein in overheating fuelled by excessive liquidity in the banking system.

The People's Bank of China raised interest rates for the third time in less than a year on Saturday, a day after Premier Wen Jiabao warned of risks still facing the economy. The 27-basis-point increase in both one-year deposit and lending rates took the benchmark one-year deposit rate to 2.79 per cent and the one-year lending rate to 6.39 per cent.

The adjustment followed the release of figures last week showing surprisingly high credit growth during the first two months of the year.

Interest rate increases and other measures have managed to cool investment in factories, real estate and other fixed assets somewhat, allowing Mr Wen to claim a partial victory in the fight against economic overheating.

However, in his news conference at the conclusion of the annual National People's Congress session on Friday, Mr Wen said the economy still faced serious problems from rapid investment, fast credit growth, excessive liquidity and a huge trade surplus.

'Investment growth is too high, credit and lending is too much, liquidity is excessive and trade and international payments are not balanced,' Mr Wen said.

Most economists expect economic growth to remain strong in the coming months, encouraging further tightening.