Overheating fears still strong after 11pc growth in first half The mainland raised interest rates for the second time in four months yesterday in its latest attempt to rein in rapid credit growth and investment to keep the economy from overheating. The People's Bank of China announced an increase of 0.27 percentage points in commercial banks' one-year deposit and lending rates, bringing the one-year deposit rate to 2.52 per cent and the one-year lending rate to 6.12 per cent, effective from today. The central bank increased lending rates by the same margin on April 27, but yesterday's increase was the first rise in deposit rates in two years, partly aimed at discouraging companies from reinvesting their profits. It has also twice increased the amount of money banks must set aside as reserves to reduce funds available for lending. While data for last month provided signs that market and administrative tightening measures were working, the rise in rates highlights the mainland leadership's fears over the overheating economy, which saw 11 per cent growth year on year in the first half of this year. 'It's pretty clear that they were concerned about the July loan data, which was higher than normal,' said Arthur Kroeber of Dragonomics, an economic consulting company in Beijing, adding that July was normally a slow month for loan activity. 'They needed to rein it in.' Mr Kroeber said the increase in investment was being fuelled by unusually high earnings. The central bank has also expanded the discount for individual mortgage rates to 15 per cent from the base rate of 10 per cent. Frank Gong of JP Morgan Securities said this was a sign the policy was not intended to dampen individual home purchases but was targeting growth in fixed-asset investment. Analysts have said that allowing the yuan to appreciate faster would be more effective in slowing economic growth by slashing the growing trade surplus and thereby reducing the expansion of money supply and excessive liquidity. 'A stronger exchange rate dampens domestic growth and addresses the current account surplus at the same time,' the World Bank said in a report last week. The yuan yesterday ended at 7.9745 to the US dollar, down from Thursday's close of 7.9686.