The central bank is under pressure to raise interest rates to
combat price increases, but the international economic situation
could influence its decision, an adviser to the bank said
"Interest rates in China are relatively low but prices are
relatively high," Fan Gang, a member of the People's Bank of
China's monetary policy committee, was quoted as saying by the
"Some short-term deposit rates are still negative in real terms,
which means there is pressure to raise interest rates," he
The central bank raised interest rates six times last year and
increased banks' reserve requirement ratio -- the proportion of
money they must hold in reserve - 10 times to cool the economy and
But growth of the consumer price index (CPI), a bellwether of
inflation, is widely expected to rise above 7 percent for January,
beating the previous 11-year high of 6.9 percent reported in
Soaring food and fuel prices caused by the severe weather in
central and southern provinces that cut transportation and damaged
crops are behind the expected high CPI growth, as is the strong
consumption mood ahead of the Lunar New Year.
The latest monetary supply figures also indicate a need to raise
interest rates. The supply grew much faster in January as the
central bank pumped cash into the financial system ahead of the
country's Spring Festival holiday. M2, the broad
measure, rose 18.9 percent from a year earlier, compared with 16.7
percent in December.
Zhao Xijun, a finance professor at Renmin University of China,
said, "The situation in January is special."
Many companies will have paid bonuses to their staff and
investors might also have been paid their dividends, he told
China Daily. "This has led to more liquidity," he
Despite the pressure to raise interest rates, Fan said in an
open global economy, China's monetary policymakers must consider
other factors in deciding whether to make the move.
As the US has recently cut interest rates to prevent its economy
from sliding into a recession and China raised interest rates six
times last year, the opposite interest rate movement risks ushering
in more speculative capital into China, analysts have said.
Fan also ruled out a one-step revaluation of the yuan, saying it
is "not a choice that will benefit stable economic
(China Daily, February 15, 2008)