No need to raise RMB interest rates for now By You Nuo (China Daily/Hong Kong Edition) Updated: 2004-07-09 15:47
Contrary to popular belief overseas that RMB interest rates would take the
cue from the recent hike in US rates, many mainland economists say that there is
no need to follow suit; at least, for the time being.
It must be remembered that the US rate hike was very mild, a modest quarter
point; and at the same time, China's monthly inflation rate has not yet exceeded
the danger line of 5 per cent. In addition, high-level economic studies suggest
that the mainland may be able cool down its economy without changing its
interest rates; and that inflation would head south in two months.
Qin Chijiang, a veteran economist, believes China's present inflation rate,
the CPI (Consumer Price Index), should be about 4.4 per cent year on year. It
would be around this level if the May-June statistics were rounded up -
something the National Statistics Bureau has not done. If it does exceed 5 per
cent, he says, then an RMB rate hike would be a more likely policy option.
So the CPI is the key, and when it reaches 5 per cent year on year, it will
set off alarm bells, according to Qin, senior adviser to the State Council and
long-time adviser to the Ministry of Finance.
But Qin believes the mainland still has time before it decides whether an RMB
rate increase is warranted, while the present US interest rates may not affect
China's international balance of payments significantly. At the same time,
projections released by high-level government think-tanks suggest that the
mainland's CPI will level off in August, even if nothing is done between now and
then to adjust interest rates.
Yi Xianrong, a researcher at the Chinese Academy of Social Sciences'
Institute of Finance, said timing is important. Even if there is to be an
interest-rates hike, it must done at an appropriate time, and done smoothly -
not based on any changes in US interest rates. Raising rates too quickly would
be perceived as administrative interference, he says.
Yi's colleague Wang Songqi, also a researcher with the CASS Institute of
Finance, says the Federal Reserve's latest hike would certainly affect the
region, but its effect on the mainland's economy still depends on the mainland's
own inflation rate. Meanwhile, some economists point out that interest rates
adjustments on the mainland tend not have much effect because those who depend
heavily on credit for their operations will continue to depend on it anyway -
local governments and investment projects they have sponsored, in particular.
There is also the danger that if RMB rates are raised too quickly, it may
attract a greater influx of dollar-denominated overseas capital to the mainland,
resulting in either pressure for a revaluation of the RMB or, if it is money
under the control of private investors, finding its way into black-market credit
supplies. At the same time, there are increasing calls from the local press for
the government to halt efforts to slow the economy, since the inflation rate has
not reached dangerous levels and the nation needs robust economic growth to
generate a massive number of new jobs.
In an attempt to provide assurances that healthier growth is on the way, Vice
Premier Zeng Peiyan told the CPPCC (Chinese People's Political Consultative
Conference) National Committee last week that Beijing's macro-economic
readjustment is already doing its job, implying that no more harsher measures
are needed.
The optimism about the macro-economic policies' effect in slowing down the
economy comes from figures in May, which showed that China's investment in fixed
assets saw a decline of 15.4 per cent year on year.
