BEIJING - China raised rates on Friday for the second time in four months in the latest effort to slow a boom in credit and investment that risks destabilising the world's fourth-largest economy.

The People's Bank of China, the central bank, said on its Web site (www.pbc.gov.cn) that it had ordered an increase of 0.27 percentage point in commercial banks' benchmark one-year deposit and lending rates.

A customer checks hundred Yuan bank notes at an ATM in Beijing in this July 21, 2005 file photo. China raised rates on Friday for the second time in four months in the latest effort to slow a boom in credit and investment that risks destabilising the world's fourth-largest economy. [Reuters]

The one-year deposit rate is now 2.52 percent and the one-year lending rate stands at 6.12 percent.

The PBOC raised lending rates by the same margin on April 27 but kept deposit rates unchanged.

"To consolidate the achievements in macro-economic control, it's necessary to use interest rates as a lever to curb investment and demand for credit while mopping up liquidity," the central bank said.

As is often the case in China, the tightening caught many in the markets off guard.

After tentative signs of slower investment and output growth in July, many economists had expected the central bank to hold fire even though money supply and credit are growing well above target.

"The rate increase is a surprise," said Shahab Jalinoos, a senior currency strategist with ABN AMRO in Singapore.

"It is difficult to say what impact it will have on the spot currency market, but globally it will be seen as another example of liquidity removal," he said.

Japan, the European Central Bank and Australia are among major central banks that have raised borrowing costs lately, although the Federal Reserve has paused after a two-year campaign of rate rises.

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