China Raises Interest Rates For First Time Since 2007

China hiked its interest rates for the first time since 2007 in a bid to combat rising inflation.

The People's Bank of China raised its one-year deposit rate to 2.5% from 2.25%, while the lending rate rose to 5.56% from 5.31%, Bloomberg News said.

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Inflation rose to 3.5% in August, highlighting the risk of an overheating economy. China, the world's second-largest economy, grew at an annual rate of more than 10% in the first half of this year.

When the financial crisis hit, China slashed interest rates and encouraged state-owned banks to increase lending. Now policy makers are scaling back these policies to slow inflation and prevent possible credit bubbles.

"Policy makers need to better anchor inflation expectations by boosting real interest rates," Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd., told Bloomberg News before the release.