Think-tank report says mild short-term options can help cool the economy The central bank may raise interest rates or increase commercial banks' reserve ratios to cool the economy if growth in credit and investment remains brisk this month, a National Development and Reform Commission think-tank said yesterday. 'The authorities could consider further adjustment in interest rates and increasing the reserve ratio requirement,' the commission's Academy of Macroeconomic Research said in a report published yesterday. It follows other reports from government-backed institutions warning of the risks of economic overheating, including the State Information Centre and the People's Bank of China. However, the latest report said the central government should avoid using strong tightening measures in the near future because it had recently introduced measures to curb credit growth and cool the property sector. 'It is inappropriate to issue further tightening policies in macro control right now,' the academy wrote. The mainland economy grew 10.3 per cent year on year in the first quarter, as investment in factories, real estate and other infrastructure projects accelerated. The growth spurred the government to introduce measures to stifle overheating in some sectors. The academy suggested mild, short-term options to control the economy, such as draining more funds through the central bank's open-market operations and using administrative measures to push commercial banks to exercise caution in their lending. It blamed excessive liquidity on soaring credit and surging investment growth. According to the latest official figures, urban fixed-asset investment rose by 29.6 per cent year on year in the first four months of the year. Broad M2 money supply rose 18.9 per cent to reach 31.37 trillion yuan at the end of April, well above the 16 per cent growth target for this year set by the central bank. In its first-quarter monetary report published on Wednesday, the People's Bank of China warned of inflation and excessive credit growth, but said it would continue its 'prudent' monetary policy. To curb rapid loan growth and rein in investment, the central bank raised the benchmark one-year lending rate by 27 basis points in April, the first time it had adjusted interest rates since October 2004. Despite the measures, the central bank still had difficulty mopping up excess liquidity, the academy's report said. Funds have been flooding into the more developed coastal regions, particularly into real estate in urban areas that could result in exorbitant profits, the report said. Soaring property prices have caused widespread public discontent and sparked calls for the government to act, as rising prices in big cities put home ownership beyond the reach of many. On Monday, the State Council unveiled new measures to control surging property prices, including higher minimum deposits, higher taxes and restrictions on lending. A new report compiled by the State Information Centre this week also warned the economy was faced with risks from excessive credit growth, soaring property prices and runaway fixed-asset investment by local governments. But the think-tank said there were no signs of overheating for the economy as a whole.