The central bank should take appropriate measures to raise interest rates and reserve requirements this year, in an effort to cool down the overheated economy, says a report issued by the State Information Center yesterday.

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China's gross domestic product (GDP) is forecast to rise 10.8 percent in the second quarter of 2007, while the consumer price index (CPI) is expected to gain three percent over the same period, the center said in the report.

This would bring the GDP growth rate for the first half of this year to 11 percent, while the growth rate for CPI in the first half would be nearly three percent, the report said.

Key economic indicators, including the M1, the narrow measure of money supply that covers cash in circulation and corporate demand deposits, as well as power generation output, the growth rate of industrial value added and sales revenue of industrial enterprises are overheated, according to the report.

In addition, the report warned China's fixed assets investment may rebound and will face high inflation pressure in the future.

China's economy grew 11.1 percent in the first quarter on the back of booming investment and exports, fuelling speculation that interest rates would need to rise again soon. The country's CPI grew by 2.7 percent in the first quarter.

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