By Xin Bei

The latest US interest-rate hike might be a relief for Chinese monetary authorities who are highly cautious of lingering speculation on revaluation of the renminbi.

But a critical matter the move actually spotlighted was the pace of China's interest-rate increase.

The US Federal Reserve nudged up its benchmark interest rates by a quarter of a percentage point on Wednesday, narrowing the recently enlarged interest-rate gap between the US dollar and the Chinese yuan.

This is the fourth time the US central banker has boosted credit costs this year in its measured efforts to remove some of the exceptional degree of stimulus to the US economy.

And it came two weeks after the Chinese counterpart finally raised its domestic interest rates for the first time in nearly a decade.

Surely, the apparently synchronized rate-hike in China and the United States, the two major growth engines of the world economy, says a lot about underlying changes in the perspective for global growth. The times of cheap money may soon be over.

However, whether China will also press on with small but steady rate increase as the United States has done is still up for debate.

Different economic conditions certainly call for different monetary policies.

While the United States was concerned about how to ensure its recovery picks up the pace enough to cope with stiffer rates, China is more concerned with a desirable soft-landing.

Excessive investment has not only propelled China's economic growth to an unsustainably high level but also significantly fueled inflationary pressures in the domestic market.

A late-October interest rate hike serves as a needed stab to address this problem.

Some argued that it was not necessary to raise interest rates soon to allow previous moves to take effect, while others insisted frequent marginal adjustments are crucial to bring the market into full play.

Anyway, the rate hike of about a quarter-percentage-point China's central bank announced last month is more symbolic than substantial in discouraging credit demands stemming from excessive investment growth.

At present, the real interest rate for loans is still near zero. More steps will definitely be required to effectively bring down credit demand.

With its currency still virtually pegged to the US dollar, China's monetary authorities have little elbow room in sharply raising interest rates, which otherwise might invite more inflow of foreign capital and force the central bank to pump more local currency into the partly overheating home market.

With the interest rate gap between renminbi and the US dollar narrowed again, Chinese monetary authorities are better positioned to set the pace of their own rate-rise.

(China Daily November 12, 2004)