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Most people want interest rate to increase

By Zhang Yu (China Daily)
Updated: 2007-03-09 08:53

As China's economy faces mounting inflation, many believe that increasing the interest rate is the solution.

In a poll conducted on China Daily's website, www.hwdly.com.cn, 61.33 percent of the 1,130 respondents said the central bank "should raise the interest rate to cope with inflation", 26.99 percent disagreed, and the rest did not know.

Although Yi Gang, assistant governor of the People's Bank of China, said in February that the central bank "is very concerned about the interest rate but hasn't taken it as a regulative target", many market researchers predicted the interest rate would be raised by 27 basis points and at least once in 2007.

Wang Zhihao, a senior economist with Standard Chartered, said the central bank is likely to raise the benchmark lending rate by 27 basis points in the second quarter.

"The most important factor is the rise in food prices," said Wang, who predicted that the inflation rate this year will touch 3 percent.

Many Web commentators share Wang's view. According to one netizen: "Increasing the interest rate is a good way to ease inflationary pressure. In my opinion, the current inflation is mainly caused by the demand for raw materials."

The rise of the consumer price index (CPI) to a relatively high 2.8 percent in December and concern about excessive liquidity has turned the spotlight on the interest rate.

Rise in food prices late last year immediately pushed up the CPI. And, as Yi Gang said, fierce competition in the consumption market means daily necessities such as water, electricity and gas are likely to become more expensive.

Lehman Brothers recently predicted that the central bank is likely to raise the interest rate by 27 basis points to "prevent the real deposit rate from being lower than zero".

Some netizens said if the central bank does indeed raise the deposit rate, it will "benefit the people".

"It is good for our depositors to get more money," said one netizen. Another said: "Savings rate must be increased. Otherwise, money will drain out of China and flow to other countries with higher rates."

But some beg to differ. "Using interest rates to check inflation is a balancing act that must be exercised carefully so as to slow, but not stall, the economy," said one Web commentator, adding "inflation will hurt the Chinese people by eroding their spending power".

"It is not the interest rate that needs adjusting," said another netizen. "The root of the problem is a ridiculous increase in the money supply."