Yi Xianrong: China must raise interest rates further
(Reuters)
Updated: 2006-07-03 14:18 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,
Yi said.
"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
saying.
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
yuan.
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.
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