Chinese Central Bank Flags Support for Interest Rate Hike

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Senior researchers at the People’s Bank of China have pointed to the possibility of a near-term interest rate hike given the Chinese economy’s recent strong performance.

“There is room for an increase in interest rates in the short term as industrial product prices and enterprises profitability have improved since last year,” said Ji Min, deputy head of the central bank’s research department, to China Daily.

Min noted that any interest rate hikes would need to first take into consideration both inflation and foreign exchange rates.

Min’s remarks following the expression of similar sentiments by Xu Zhong, head of PBOC’s research department, in November.

According to China Daily PBOC researchers increasingly endorse the use of interest rate hikes as a tool for deflating asset bubbles and containing debt growth, in tandem with the deployment broader regulatory measures.

Researchers say a hike in interest rates could improve the investment returns of producers by curbing debt expansion.

Chinese regulators are expected to maintain the momentum of deleveraging campaign they launched last year, as part of efforts to contain the burgeoning mounting of debt accumulated since the Great Financial Crisis, deflate asset bubbles and forestall any systemic financial risk.

Chinese officials point out that interest rate hikes are part and parcel of the deleveraging process, as evidenced by shifts in monetary policy on the part of the US Federal Reserve and the European Central Bank following the gargantuan monetary easing policies adopted in the wake of the Great Financial crisis.

PBOC has indicated that asset prices will be a focal point for the central bank’s regulatory efforts in future.

“The target of macroprudential policy tools is to prevent severe turbulence in asset prices, which would threaten economic stability,” said Yin Yong, vice-governor of the People’s Bank of China.

According to Yin the prices of assets such as bonds, stocks and real estate are becoming an increasingly important indicator of the economic well-being of Chinese citizens, necessitating a transition away from the use of consumer price inflation as a primary determinant of monetary policy.

 

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