Reuters quoted the official China Securities Journal said China should raise benchmark interest rates soon to tame inflation and accelerate economic restructuring, even though the move could slow growth.

The central bank has relied more on rises in reserve requirement ratios than interest rate increases so far this year to check inflation.

The newspaper said China real interest rates had been negative for too long, fuelling money flows outside the banking system, weakening the effectiveness of quantitative easing tools such as required reserve ratio increases or lending curbs.

According to official data although interbank money market rates had jumped and growth of new lending and money supply had slowed in June, loan demand remained robust as many enterprises turned to non-banking financial institutions for financing.

It said in addition China inflation was largely driven by its booming real estate market which had pushed up prices of labour and raw materials, and interest rates were typically necessary in such a scenario.

The paper said if China did not raise interest rates now, the momentum of higher inflation could accumulate while the task of transforming the model of economic growth would become more difficult.

Separately, Mr He Keng a senior lawmaker told the People Daily that the central bank should suspend raising bank reserve requirements as it had failed to contain inflation.

The central bank has raised reserve ratios six times so far this year but has only increased interest rates twice. Its latest move last week sparked an acute money market squeeze forcing it to suspend bill issues on Thursday.

(Sourced from Reuters)