Mumbai: China's central bank raised interest rates for the fourth time in a year in a bid to control money supply and curb rising prices even as central banks around the world pumped in cash to offer succor to fund-starved markets.

The interest rate on one-year bank deposits will go up by 27 basis points to 3.6 per cent while the one-year lending rate will rise 18 basis points to 7.02 per cent effective 22 August, the People's Bank of China said.

The demand deposit interest rate remains unchanged at 0.81 per cent. The central bank said the move is aimed to "control money supply and credit, and stabilise inflation expectation".

The annual growth of money supply (M2) in China rose to 18.5 per cent in July, 1.42 percentage points above the June figures and the fastest this year.

China's high inflation rate, driven mainly by rising food prices, is expected to have a cascading effect on the general price level. The rate hikes are aimed at reducing bank lending.

China's is tightening liquidity while most central banks worldwide are battling to boost cash flows. This underlines China's relative immunity to the troubles afflicting global markets.

The financial insulation, highlighted in a decision to raise interest rates again, is an arrangement of China's own making, as it combines a not fully convertible currency with limited access to the capital markets.

Worries about problems in the US mortgage market have caused liquidity to dry up in money markets as private banks withhold funds, prompting US and central banks in Asia and Europe to offer extra cash.

China is doing the opposite, sucking up as much cash as possible in an only partly successful attempt to prevent it flooding into stocks and property.

'China is still a different universe it seems when it comes to liquidity and growth momentum.'

This was the latest chapter in China's prolonged struggle with excess liquidity, boosted directly by foreign fund inflows under the current exchange rate regime.