CPI eases, pressure for interest rates hike remains

By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-05-14 11:00

The benchmark Shanghai Composite Index broke the psychologically important barrier of 4,000 points on Wednesday, less than two months after surpassing the 3,000-point mark.

The sharp gains are once again raising worries about bubbles developing in the equity market.

If negative real interest rates are left un-checked, the sustainable development of the market will be in jeopardy, Goldman Sachs warned last week.

"To ensure the sustainability of the market over the medium term, we believe policy makers need to act quickly," economist Hong Liang of the investment bank said.

"Delays in policy actions will run the risks of severely impairing households' balance sheets, exacerbating income and wealth distribution, and setting back years of progress made on capital market reform."

Furthermore, banks extended 422 billion yuan in new loans in April, bringing the amount for the first four months to 1.85 trillion yuan - more than half the total for the whole of 2006.

In April, the broad measure of money supply - M2 -- slowed down to 17.1 percent from 17.3 in the previous month, the central bank said.

However, the M2 growth still remained well above the People's Bank of China's full-year target of 16 percent.


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