Shanghai, March 19:

China’s latest interest rate hike is only a first step as regulators show signs of increasing urgency in trying to slow the pace of growth in Asia’s second-largest economy, analysts said on Monday.

It was the third time in a year the People’s Bank of China hiked the key loan rate, the latest measure in a long campaign to slow runaway growth in the Chinese economy, which last year expanded 10.7 per cent.

The central bank’s announcement Saturday raised rates by 27 basis points, taking one-year deposits to 2.79 per cent and one-year lending to 6.39 per cent. The PBOC cited inflation and controlling growth in money, credit and investment as crucial to ensuring financial stability and steady and reasonable economic growth.

Highlighting the need to slow the economic expansion was the speed with which regulators reacted after data last week suggested that inflation was on the rise, exports were bounding ahead and lending had skyrocketed.

“The fact the PBOC chose not to delay the rate hike for another week signals its urge to tighten policy in a most timely manner to prevent further acceleration in loan and investment growth and to help contain asset inflation,” said Ma Jun, a chief economist at Deutsche Bank.

Last week exports figures, which China has acknowledged it must do more to slow in order to rebalance its trade relations, showed a jump of 51 per cent in February while loans soared 36.8 per cent in the two month period.

Meanwhile, a sharp rise of 18.5 per cent in industrial output followed news that China’s key inflation measure, the consumer price index, jumped to 2.7 per cent in February, added to the evidence that the economy is picking up even more speed.

“CPI growth is approaching three per cent which is certain to make officials nervous because they would like it below three per cent,” said Huang Yiping, an economist at Citigroup in Hong Kong.

“Also the fact that the trade surplus remains large and liquidity remains abundant, that’s kind of a potential risk for both a likely investment rebound and a possible asset price bubble.” The central bank’s decision followed on the heels of a warning from Chinese Premier Wen Jiabao that economic growth at current rates was “not sustainable”.

“Now we have an excessively high investment ratio and we have an excessively large extension of credit and excessive liquidity in the market,” Wen told a press briefing Friday at the end of annual parliamentary session. The remarks have become all too common among top officials in recent months, with Vice Premier Zeng Peiyan the latest to warn at a weekend conference of the risks China faced unless action was taken now.

“Serious environmental and resources constraints, irrational industrial structure and development gaps between urban and rural areas as well as between regions make it imperative to accelerate change of the growth model in pursuit of sustainable development,” Zeng was quoted as saying by the China Daily.

Yet analysts say regulators must take more stringent measures if they are to win the battle to slow and rebalance the word’s fourth-largest economy.