Scholar: Surprise rate hike highlighted inflation woes
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The first surprise interest rate hike in almost three years, implied that to shrink liquidity and control inflation at a mild rate, have become top priority to the central bank, a Chinese economist said in Wednesday's Beijing News.
The People's Bank of China, China's central bank, Tuesday announced a rise of its benchmark interest rate hike effective from Oct. 20, the one-year deposit rate will rise from 2.25 percent to 2.50 percent, and the one-year lending rate will increase from 5.31 percent to 5.56 percent.
Ma Guangyuan, a Chinese economist, believed this was an unusual action at this sensitive point in time of RMB appreciation. If the interest rate is hiked, China would have to face greater pressure and trigger faster inflows of hot money.
Then why China still chose to throw out this sword?
Ma analyzed that it was a response to prevent possible sever inflation, which is now the top enemy of China’s economy.
The CPI in August was as high as 3.5%, and the September data would be definitely higher. Daily goods such as vegetables, sugar, natural gas, edible oil and household paper all rose in price, which impact people’s daily living.
What's more, property prices in 70 major Chinese cities rose 9.1 percent year on year in September, although the lowest growth rate so far this year, implied that more measures still needed to curb bubbles.
He said that negative interest rates and too much liquidity are to blame for these prices hikes.
Therefore, a gentle rise in interest rates is timely and necessary. It enabled central bank to release the message of gradual exiting of stimulus measures and concerns over future inflation.
However, this 'dose' is far from squeezing real estate bubbles and restraining high inflation. There is still possibility to re-increase interest rates later.
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