RMB won't follow US dollar rate increase: experts

The US Federal Reserve announced on June 30 that it increased the federal funds rate by one-quarter percentage point to 1.25 percent. This was the first rate increase in four years. What does the dollar rate increase mean? Will the RMB follow it and increase its interest rate? Regarding this the reporter interviewed relevant experts and scholars.

Yang Zaiping, deputy director-general of Ideological Bureau of CPPCC (Chinese People's Political Consultative Conference), believes the Fed rate increase had more a signal meaning than it did a substantial meaning. It is because before this Federal Reserve Chairman Greenspan had implied on various public occasions that the Fed would gradually adopt a tight monetary policy. Therefore the market had generally predicted the Fed rate increase and had digested this result in advance. The chief objective for the Federal Reserve to announce the benchmark rate increase was to warn people that the US is now facing an inflation pressure and investors should be prudent in their actions.

He Liping, dean of the Finance Department of Beijing Normal University, said to the reporter the Fed rate increase involved, to a certain extent, a periodical transition meaning. It means the easy monetary policy that started from 2001 has officially come to an end. This rate increase can be viewed as a neutral policy stance. Although the Federal Reserve has not concluded that the US is now at a climbing economic cycle it has already begun to guard against inflation.

Wang Zhao with the Macro-Economy Research Department of Development Research Center of the State Council, said benchmark rate is the overnight inter-bank borrowing rate in the US. It represents the rate level of short-term market. As the benchmark rate increases commercial deposit rate and lending rate will also increase. It is because the increase of benchmark rate means that funds are in short supply and commercial lending rate is certain to increase. Pressured by competition deposit rate will also increase.

Before this China's domestic inflation and over-investment put much pressure on the central bank for a rate increase. Will the Fed rate increase urge the Chinese central bank to raise interest rate? The interviewed experts generally believe that the dollar rate increase won't put much pressure on the interest rate of RMB.

He Liping said the exchange rate of RMB is adopting a mechanism that keeps a close watch on the US dollar. Therefore the rate increase of dollar will ease the appreciation pressure on the RMB exchange rate as well as the rate increase pressure on the Chinese central bank.

Wang Zhao believes it is not suitable for China to employ the rate increase measure now, since the problem of the Chinese economy is a structural one not an aggregate one. If investment still stays at a high level the first thing to do is to consider utilizing financial policy to the fullest extent. If the interest rate must be changed lending rate should be the first to be changed. It is because raising lending rate can check over-investment whilst raising deposit rate would choke back consumption.

Yang Zaiping told the reporter that the rate increase of the US dollar won't affect the interest rate of RMB very much. Whether the RMB will raise rate or not largely depends whether the price rise will exceed 5 percent. Of the price rise during the first six months price rise of agricultural products accounted for more than 30 percent. With the harvest of agricultural products price hike pressure in the following six months will lessen. Therefore the pressure on adjusting RMB interest rate is also lessened somewhat.

By People's Daily Online