Chinanews, Beijing, Jan. 24 – Chinese government's macrocontrol measures taken last year have proved to be effective. As a result, the growth rate of investment on fixed assets and that of credit release have both declined. If such trend continues, some analysts predict that it will then be very unlikely for Chinese government to raise the interest rate, China Business News reported.
Professor Ren Ruo’en from the Economic Management School of the Beijing University of Aeronautics and Astronautics said that commodity price will not go up much this year and next. At the same time, Chinese macroeconomy will show signs of cooling down. The ever-increasing trade surplus indicates a weak consumption demand at home. In this situation, it is very unlikely for the central bank to raise interest rate.
Professor Zhao Xijun from Renmin University of China agrees with the view by proposing a different reason. He said that at present, there is over-liquidity in the Chinese economy while consumer price index remains low. In light of this, the central bank won’t probably raise the interest rate.
Some economists point out that local governments’ investing boom and banks’ enthusiasm for credit release make it hard for interest raise to achieve any desired result. On the other hand, any administrative measures might become more effective to them.
Renminbi appreciation has become a major hindrance to interest raise. When a country’s currency appreciates, it is usually the case for the country’s central bank to keep its interest rate at a low level. Renminbi appreciation has attracted lots of hot money from overseas and as a result, both the current items of Renminbi and its capital items display a favorable balance. If the central bank raises the interest rate, more hot money will flow to China and this will add more pressure for Renminbi to appreciate.
Last year, Chinese central bank managed to keep the Renminbi appreciation rate to stay below the interest difference of the yuan and the US dollar. If the United States further reduces its interest rate, it will make the interest difference between the yuan and the US dollar even smaller, which will make it even more difficult for the central bank to raise interest rate.
