Too much money is moving around the mainland economy and Beijing should not fear raising interest rates, despite concerns about growing inflows of hot money, according to a top government adviser. 'The level of excess liquidity has eased but there has been no fundamental turnaround,' Chen Daofu, vice-director of research at the State Council's financial think-tank, said in an interview with the China Securities Journal. After surging at 18.9 per cent year on year in January, the broad M2 supply of money moderated to an unexpectedly weak 17.5 per cent in February. However, with consumer price inflation hitting 8.7 per cent that month, the highest level for almost 12 years, Mr Chen warned that the risk of inflation remained 'severe' and that further monetary tightening measures might be necessary. Although he did not specify that interest rates should be raised for the first time since December, he said fears about speculative inflows chasing marginal returns from the gap between United States and mainland interest rates were overblown and could backfire. 'If we abandon interest rate tools because a moderate amount of hot money is flowing in to take advantage of arbitrage opportunities, this will cause greater turbulence in asset prices, which in turn will attract more hot money to take advantage of rising asset prices,' Mr Chen said. The central bank raised interest rates six times last year but it has held off further moves since the Federal Reserve made several aggressive rate cuts to help support the faltering US economy. Mr Chen said he remained optimistic that inflation would be kept under control, despite shortages in the food, raw materials and energy sectors. 'If the economy grows at 8 per cent this year, hitting the government's 4.8 per cent inflation target is completely guaranteed,' he said. However, economists warned yesterday that pressure on international food and energy prices continues to pose a severe risk. 'Inflation risks in China remain serious and the risk of international inflation expectations coming unstuck is higher than it has been since the Opec oil shocks in the 1970s,' said Glenn Maguire, the chief Asia economist at Societe Generale. Although the central bank raised the amount of money banks must keep in reserve by 50 basis points to 15.5 per cent last month, Mr Chen said there was room for further increases. 'The recent increase in the reserve requirement has lowered the immediate risk of another interest rate hike,' said Frank Gong, JP Morgan's chief China economist.