China must raise interest rates more aggressively to stifle demand for credit
that has fuelled an investment boom, an influential government economist said in
remarks published on Monday.
Yi Xianrong, an economist at the Chinese Academy of Social Sciences, a top
government think-tank, joined a chorus in support of raising borrowing costs to
help ward off economic overheating after a slew of tightening measures in recent
"Many economic problems are a result of low interest rates and therefore
raising bank lending and deposit rates would be the best method to resolve the
problems," Yi was quoted as saying in a report posted on the official Web site
"Raising bank lending and deposit rates is imperative."
In late April, the central bank raised the benchmark one-year lending rate to
5.85 percent from 5.58 percent in response to the faster-than-expected economic
growth of 10.3 percent in the first quarter, but it kept bank deposit rates
The rate rise was the first since October 2004.
Higher yuan interest rates may not necessarily spur inflows of speculative
capital betting on the yuan, because the domestic currency market remained
largely isolated due to the yuan's limited convertibility, Yi said.
U.S. interest rates exceeded Chinese rates by about 3 percentage points after
the Federal Reserve last month lifted rates in its 17th straight quarter
percentage point hike, but that failed to cool expectations of a stronger yuan,
"China will enter a cycle of raising interest rates as other central banks
have already entered such a cycle to tighten liquidity," Yi was quoted as
Analysts say the People's Bank of China, the central bank, has been treading
cautionsly to limit capital inflows that could put more upward pressure on the
The government had kept interest rates artificially low to help push through
reforms at state-owned companies, Yi said.
Chinese economists and officials have been locked in heated debate on how the
government should steer the economy, some suggesting the yuan should be allowed
to rise faster.
Last week, Chen Dongqi, vice head of the Academy of Macroeconomic Research
under the National Development and Reform Commission, urged the central bank to
raise interest rates and said it could learn from moves made by the U.S. Feb.