The People's Bank of China, the central bank, published on August 9 its report on financial performance of July. On the same day, the Federal Reserve announced to raise key short-term interest rates by 25 base points, the second time the Fed had done so in recent six weeks.

Will China follow the Fed to raise the interest-rate? The question was put to the central bank. According to He Qiang, a researcher on securities and futures from the Central University of Finance and Economics, the raise of interest rate was not suitable for China in a short period to come.

He explained that raising interests rates in the United States and in China are different things. What the Fed raises is the Federal Funds Rate, while what China raises are bank interest rates for deposits and loans between commercial banks and depositors, which have long become market controlled in the United States.

He believes that the central bank's formulation in the first half was should the Fed raise its interest rate China would follow suit, and in the latter half it changed to that China may not raise interest rate even if the United States does so. In this regard, the central bank will not follow the Fed completely in policy-making, but will consider China's own situation, and that of the United States can serve only a reference.

After the Fed's second announcement of raising interest rate, analysts say this indicates a judgment by the Fed of strong recovery of economy at home. This has, of course, provided more room for China to adopt the same measure.

The financial performance report of July by the central bank showed that the nation's finance is operating steadily, with the exchange rates of RMB and market interest rates between banks kept basically stable.

The report dropped a hint--even if the Fed does so, China may not follow; and even if the Fed doesn't do it, China may choose to do so, said Doctor Zhong Wei, a research fellow from the International Finance Research Institute, the Chinese Academy of Social Sciences.

In adjusting the RMB exchange rate China would consider more macro-economic trends than the Fed measures, Zhong said.

The Producer Price Index (PPI) of July showed that the country is still under the pressure of raising interest rate. Official statistics indicated that PPI increased 6.4 percent over the same month of the previous year, a growth the same with in June. The soaring of producer's price for manufactured products meant higher consumer price, a major index in predicting inflation.

Although the central bank didn't answer the question concerning interest rate, its statistics showed it is not eager to take action.

The fact that currency supply nationwide slowed down in July proved the effectiveness of the central government's macro-control policies, said Qi Jingmei, a research fellow with the State Information Center, adding that money supply is completely under control and it's no need for the central bank to raise interest rate.

Echoing these statistics from the central bank is the report on the implementation of monetary policies in the second quarter published a day earlier, which said the central bank would fix loan interest rate at a rational level, coordinate interest rates of RMB and foreign currencies and promote orderly flow of capital. The report also predicted that the nation's money supply in third quarter will dropped to a relatively low level.

The message disclosed by the central bank report is that there is no interest rate raising. But the final decision depends on economic indexes of the third quarter, said He Qiang.

Industry insiders noted that the central bank usually publishes its second-quarter report in mid July, but this year it was out in August.

The United States announced interest rate raising on August 10, while China's central bank published its routine report just a day earlier. This means the central bank is quite sure that it is able to control the whole situation, Zhong Wei analyzed.

The timing of the release of the two reports serve a signal to the outside by the central bank--the possibility of raising interest rates for foreign currencies is quite high.

But market analysts worry that raised interest rate may bring a more violent impact on China than on the United States. If China chooses to raise the rate, sharp drops may be seen on stock market and enterprises may suffer more from shortage of flowing capital. "So, whether to raise interest rate or not, I think the central bank will still have to wait and see", He Qiang said.

By People's Daily Online