BIZCHINA / News
Experts divided on another interest rate hike
Updated: 2007-06-13 10:42
The National Bureau of Statistics on Tuesday announced that the consumer
price index (CPI) for May reached 3.4 percent. The figure well beats the
three percent target set by the People's Bank of China for this year and
triggers a new round of debates on the possibility of another interest
rate hike.
On June 5, China's central bank governor Zhou Xiaochuan said the central
bank needs to look at the overall CPI in May to decide whether to raise
interest on deposits or not.
Though the CPI increase meets the forecast of investment banks such as
HSBC, Goldman Sachs, and Lehman Brothers, these three investment banks do
not think China's central bank will raise interest rates to control
inflation in the short term.
According Lehman Brothers, the skyrocketing CPI for May was mainly driven
by surging food prices, and this reason is a seasonal factor. If it does
not continue, then the central bank does not need to hike interest rates
soon.
Liang Hong, chief economist for Goldman Sachs China, echoed the same
view. "The central bank just raised interest rates last month, so it
maybe only requires commercial banks to set aside more deposit reserves
to cool inflation," Liang said.
Related readings:
Inflation hits 27-month high with CPI up 3.4%
Another interest rate hike depends on CPI
China to raise interest rates again - survey
Let interest rates play their role in economy
For a country that has a 10 percent economic growth, inflation from three
percent to five percent is not a problem, according to a report from
HSBC, and the bank believes the central bank will increase interest rates
in future, but not immediately.
However, Li Junjie, economist for the National Development and Reform
Commission, has a different opinion. He says the interest rate hike can
cool inflation.
Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse,
believes another three hikes are needed to reduce inflationary pressures
as well as to rein in soaring investment and property prices.
A real estate expert in Guangzhou agrees. Han Shitong also expects the
central bank to increase interest rates. "The interest rate hikes put
more financial pressure on those with mortgages," he added.
Wu Dingjin, vice project manager of Jingwei Real Estate, also concurs,
saying the central bank should raise interest rates to control the CPI
and inflation. But he warns this is not good for the real estate
industry. "For long term, interest rate hikes will lead to higher housing
prices."
Some other Chinese economists also rule out the possibility of another
interest rate hike in the short term, but insist that scrapping the 20
percent tax on bank deposit interest would be a better policy option.
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