WASHINGTON, Aug 24: The IMF warned on Thursday that China’s economy still faces a major risk of overheating despite the booming country’s second interest rate hike in less than four months.

International Monetary Fund spokesman David Hawley welcomed the hike by China’s central bank, which took effect on Saturday.

But he added that “significant risks still remain that macroeconomic policies are not sufficiently tight”.

“Macroeconomic policies should continue to be geared toward restraining investment growth,” he told reporters.

“Additional monetary tightening would drain liquidity from the banking sector and guard against continuing rapid credit growth.”

The IMF has long been concerned that China’s economic boom is unsustainable, and could implode with damaging consequences for world growth.

The People’s Bank of China said the latest hike was needed to curb lending and investment, identified frequently by the government as among the biggest problems in trying to slow down the red-hot economy.

The one-year benchmark lending and deposit rates were increased by 0.27 percentage points, taking the lending rate to 6.12 per cent and the deposit rate to 2.52 per cent.

“The Chinese authorities have taken important steps to slow credit and fixed investment growth to more sustainable levels,” Hawley said.

“However, economic activity remains strong, driven by net exports and investment, while inflation is low.”—AFP