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Central bank sitting on the fence for another interest hike
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Yi Gang, assistant to the governor of the People's Bank of China, suggested the central bank still needs time to decide whether to raise the benchmark interest rate again this year, according to the Shanghai Securities News.

 

September's consumer price index (CPI) growth was a reported 6.2 percent, down 0.3 percentage points from the peak of August's 6.5 percent. However, Chen Jijun, a macro economic analyzer from CITIC Securities, said "the actual interest yield is still negative based on current one year benchmark interest rate of 3.87 percent."

 

On October 11, the central bank unleashed 150 billion yuan (US$20 billion) of central bank notes with 3-year maturity period. Two days later, it announced the year's eighth lift in banks' reserve requirement ratio, which together with gloomy fixed asset investment figures, raised market expectations for a sixth interest rate rise this year.

 

In the meantime, Yi, when addressing a forum in Hong Kong, claimed the whole year's CPI will surpass 4 percent and reach a likely 4.5 percent. Yet because turning the negative actual interest yield is no short term effort, the central bank has maintained its "wait and see" policy.

 

With regard to renminbi appreciation, Yi personally believed minor fluctuation and gentle appreciation are appropriate approaches.

 

(China Daily October 25, 2007)

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