BIZCHINA> Recent Adjustments
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BIZCHINA> Recent Adjustments
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Rates raised for first time in a decade, 10/2004
By Xu Binglan (China Daily)
Updated: 2004-10-29 05:46 Tao Dong, chief China analyst with investment bank Credit Suisse First Boston, estimated that around 120 billion yuan (US$14 billion) is flowing in the non-official system, which is equivalent to 10 per cent ofgross domestic productand 0.5 per cent of credit in the banking system. This is already alarming enough, Tao said. If this situation deteriorates, it will lead to great financial risks and will be debilitating for banks and the authorities' capabilities in making further adjustments, Tao said. On the other hand, theconsumer price index(CPI), the key indicator for inflation, has been well above 5 per cent. Prices for some materials were reversing the trend and picking up again. Economists believe major prices such as those of oil and grain will also stay at high levels for the rest of the year. Although the accuracy of the CPI is questioned by some observers, it is agreed its changes could reflect the trend and its sharp upward curve this year means the real interest rate is very close to zero which could spur unhealthy investments. The last time the PBOC raised lending rates was in July 1995, and rates were last changed in February 2002, when they were lowered to boost a sluggish economy. (For more biz stories, please visit Industries)
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