Zhou Ailin / Yicai2016-12-12
(Yicai Global) Dec. 12 -- An interest rate hike is not needed right away in China as maintaining economic stability and achieving a sustainable recovery are very important, a former top official from China’s central bank told Yicai Global.
“First, China’s economy has just stabilized. Although the goal of a 6.7 percent Gross Domestic Product growth could be achieved this year, the recovery momentum remains unclear for next year. Raising interest rates now will send a signal of a tightening of monetary policy,” Sheng Songcheng, adviser to the People’s Bank of China and former head of its statistics and analysis department, told Yicai Global.
“The Federal Reserve has been talking about interest rate hikes for a year. The process of ‘verbally raising interest rates’ is a means of gradually releasing the ultimate rate hikes, and the advantages outweigh the disadvantages. Why can’t China ‘verbally raise interest rates’? More importantly, there is no need for China to get ahead of the game when the Fed hasn’t made a move and its rate hike plan for next year remains unclear,” Sheng said.
“China’s Consumer Price Index rose 2.3 percent in November from last year and the Producer Price Index also increased 3.3 percent from the previous year. Interest rate hikes can be considered if such a trend continues. It is possible that the CPI may exceed 2.5 percent by the end of the year and the PPI may exceed five percent next year. Therefore, rate hikes are possible if the economy turns around and inflationary pressure increases.” he said.
Moreover, modest rate hikes can help China stabilize exchange rates and house prices, Sheng added.