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China's rate rise necessary, but not enough
(Xinhua)
Updated: 2004-10-30 16:32

An economist with Asian Development Bank said Friday that China's decision to raise interest rates is necessary, but not enough to curb inflation.

Tang Min, chief economist with Resident Mission of Asian Development Bank in China, said the rate hike by China's central bank sent a clear signal that it is concerned with the threat of inflation.

A Chinese bank teller counts 100 yuan currency notes at a Bank of China branch in Beijing, October 29, 2004. [Reuters]

The People's Bank of China, the country's central bank, announced Thursday that it will raise both lending and deposit interest rates 0.27 percentage points, effective today. The one-year deposit interest rate increased from 1.98 percent to 2.25 percent while the one-year lending interest rate up from the current 5.31 percent to 5.58 percent.

China's consumer price index (CPI) hit 5.2 percent in September, and for the first three quarters of this year, the figure stood at 4.1 percent.

"The market should get ready for possible more interest rate hikes in the future," said Tang.

If the inflationary pressure persisted or increased, the central bank might continue to raise the rates, he said.

He spoke highly of the decision by the central bank to broadenthe floating scope of the lending interest rate of RMB and to allow the RMB deposit interest rate to float downward.

Tang said it will have far-reaching significance as the central bank made the market-oriented decision to allow both the lender and borrower to decide the interest rates.

The central bank said it is the fourth time the bank broadenedthe floating scope of the lending interest rates since 1998 as part of its efforts to liberalize interest rates. The bank cited improved management capability of financial institutions to determine the interest rates and curb market risks as prompting their decision.

Tang said the impact of the interest rate hike on the country's economy will be very limited, because it is a very small step made by the central bank. It will influence people's expectation about future in making decision on investment and consumption.

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