Governor Zhou Xiaochuan pledged on Friday the nation will
not raise the renminbi interest rate in the short term.
The central bank chief's remarks came in response to a debate
among economists in recent weeks on whether the government needs to
resort to a rate hike to counter continually rising consumer prices
and investment growth.
China's consumer price index (CPI), policy-makers' key inflation
gauge, rose a year-on-year 3.2 percent in January and last
December, the highest since April 1997 when it was also increased
3.2 percent year-on-year.
China notched up 9.1 percent economic growth last year, fuelled
by 26.7 percent growth in fixed asset investments.
Zhou, who also pledged to maintain the stability of the renminbi
exchange rate, said the government would wait a few months to see
the consumer price trend before making any decisions.
But he did not rule out the possibility of a future rate
hike.
State Administration of Foreign Exchange Director Guo Shuqing
echoed Zhou's remarks on rate hikes.
But he said this could become more likely if the CPI rises by a
big margin in the coming months.
Xu Hongyuan, a senior economist with the State Information
Center, agreed with Zhou and Guo, saying the interest rate would
remain unchanged if CPI rises by about 3 percent.
"But if the CPI rise is greater, a rate hike is possible," he
said.
Yi Xianrong, a senior researcher at the Chinese Academy of
Social Sciences, said there is little possibility that the
country's CPI would rise rapidly.
"There is also no need to adjust the interest rate to balance
supply and demand," he said.
Higher prices are bearable, as they help create a better
environment in which State-owned companies will conduct reforms, he
said.
The government has already taken a series of measures to control
the money supply since last year, Yi said.
After increasing the money supply to keep the economy from
growing too quickly and fight the deflation, which emerged during
the Asian financial crisis of 1997-98, the central bank began
tightening credit last year.
With the aim of further controlling the money supply, the
central bank also issued a rule last year tightening controls on
loans to the fast-growing real estate industry.
And the central bank also raised reserve ratios for commercial
banks.
But Wang Zhao, a researcher with the State Council's Development
Research Center, said the possibility of raising the renminbi
interest rate in the next few months still exists.
"There are already some early inflationary signs in the
economy," he said.
Even if the government shifts the focus of its proactive fiscal
policy from supporting economic development to sustainable
development, this would increase the possibility of inflation, he
said.
Song Guoqing, a professor at Peking University, said the
government should have raised the interest rate already.
"If people feel the trend of price rise, they will rush to buy
more goods," he said.
Panic purchasing will further increase commodity prices, he
said. "Inflation will take place," he warned.
The government should adjust the interest rate in a timely
manner, he said.
The benchmark one-year bank deposit rate currently stands at
1.98 percent.
"People are losing out when they save their money in banks
because of low interest rates," he said.
The lower interest rate would also have an impact on people's
consumption behavior, he said.
People would borrow money from banks to buy larger items like
houses, in order to gain from future price rises.
This would stimulate demand, which in turn fuels inflation, he
said.
The lower interest rate would also stimulate investment, some
sectors of which are considered to be overheated, Song said.
(China Daily March 6, 2004)