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Governor: Bank Rates Should Keep Pace with Price

Bank interest rates should keep pace with price changes so as to avoid occurrence of negative rates, central bank governor Zhou Xiaochuan said.

"We need to pay full attention to the marcoeconomic condition, especailly price changes," said Zhou.

According to a Securities Times report, Zhou made these remarks recently when he were in Jinan of east China's Shandong Province, Chengdu of southwest China's Sichuan Province and Nanjing of east China's Jiangsu Province.

Interest rates adjustment should be able to keep pace with price changes, otherwise, negative interest rate may emerge and people's consumption behavior and pattern may change. Analysts say Zhou's remarks could be interpreted as a prelude to an interest rate change by the central bank.

Zhou said, under the central government's macroeconomic control policy, the central bank would monitor and analyze the price level carefully, since the relationship of price levels and interest rates can affect people's microeconomic behaviors, consequently alter the macroeconomic condition.

If the adjustment of interest rates lags behind price changes, it may lead to accumulation of raw materials by enterprises, worsening the raw material shortage, and on the other hand, negative interest rates may emerge and cause changes in people's consumption patterns.

Zhou said the People's Bank of China would be proactive in observing the macroeconomic conditions, and strengthen its monitoring and analysis about investment, consumption, savings and balance of payments, so as to make timely and accurate feedbacks about the effects of macroeconomic measures and to better serve macro control and financial reforms.

On structural problems in specific regions and industries, Zhou said, typical central bank policies like interest rates, deposit reserve funds and exchange rates are mainly for the overall adjustment, but not for specific regions or industries.

(Chinadaily.com.cn June 8, 2004)

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