It is normally hard to predict China’s Central Bank’s next move in its interest rate policy， but the raising of interest rates recently has become an open secret to most analysts， who generally believe that the Chinese CPI (Consumer Price Index) in March， which is to be released soon， will hit a new high since this period of inflation began.Wang Qing， chief economist of Morgan Stanley in Hong Kong， said that this rate hike indicates that the CPI in March that is to be released may rise above expectations and also the Chinese government had great confidence in the current economic growth momentum.The rebound of the latest PMI(Purchase Management Index) also suggests the recovery of the real economy. The PMI in March hit 53.4 and rose by 1.2% from last month， in the wake of sliding for 3 consecutive months.Liu Ligang， head of Greater China Economics， ANZ， commented that this rebound of PMI suggests that the Chinese economy is still on the rise， but the increasing rate has slowed down. He predicted that China’s GDP for the first quarter has risen by 9.3% on yearon-year basis. Although it is lower than the 9.8% increase of last quarter， this mild decrease is mainly caused by base effects and the tight monetary policy issued by the Central Bank. Generally speaking， the Chinese economy is still on the rise.As the economic growth maintains a great momentum， the inflation remains at an elevated level. According to Lu Zhengwei， senior economist in Industrial Bank Co.， Ltd.， the price of crude oil in the global market will stand above 100 USD and the FAO (Food and Agriculture Organization) also estimates that the food prices in the future will stay in the high range.From the domestic perspective， the Industrial Bank predicts that the March CPI will be about 5.2%， a new high during this period of inflation. All these factors indicate that the Chinese government still needs to make fighting inflation a priority and further exercise the monetary policy.Liu Ligang said that the recent interest rate in the currency market has decreased at a stable rate， because the regulatory authorities have ordered banks to tighten their credits， which led a huge amount of capital into the inter-bank market for profits. However， the demands in the credit market remain strong and a lot of projects need to borrow capital from banks to function. This intensifies the conflicts between the huge amount of idle money in the bank and the urgent credit need in the real economy.The rise of market yield rate is made possible by two factors: the first is the central bank’s lifting the benchmark interest rate， while the other is that the credit policy is loosened to some degree. These two factors are expected to appear in the second quarter.For the trend of monetary policy in the next stage， Lu Zhengwei still kept his predictions early this year， saying that the benchmark one-year bank deposit rate will be raised to 3.75-4.00 percent at the end of this year， which means that the government will raise the interest rate twice and three times. The legal deposit reserve ratio for the four state-owned commercial banks(ICBC， CBC， BOC， ABC) will be lifted to about 23%. Another rise in deposit reserve ratio is expected in April.Wang Qing also pointed out that this rate spike and the contraction in money supply and credit growth indicate that China’s Central Bank has decided to adopt the tight monetary policy. It is estimated that another rate increase will happen between May and June this year.(Author: from Securities Times)Expert ViewsJing Xuecheng:Central Bank’s raising interest rates is “justifiable defense”Jing Xuecheng， former deputy director of the Research Bureau of the Central Bank of China， said that last rate increase happened in Feb. 8， and the January CPI growth rate on a year-on-year basis reaches 4.9%， which is identical to the CPI growth rate in February. This shows that the pressures on prices have not been eased. Also， this is the second time since early this year that the central bank raises its interest rates. The central bank is still exploring approaches and this move is for “justifiable defense”.Jing further noted that there are no clear limits on the interest rate and deposit reserve ratio and whether there will be a new interest rate change will be determined by the market conditions.Zuo Xiaolei:Let the “pool” play its role in fighting hot moneyZuo Xiaolei， chief economist of China Galaxy Securities， said that this rate announcement by China’s central bank is not a simple reaction to the monthly CPI data， but reflects a stable and planned monetary policy measure when the whole environment is left unchanged. As for the pressure from hot money inflow caused by the widening interest margin with the Euro and USD， Zuo stated that the central bank could continue to use the deposit reserve ratio as a “pool” to fight against hot money.Yang Hongxu:Boom sales for real estate market in the second half of this yearYang Hongxu， head of the Integrated Research Department of the E-house China RD Institute， thought that as the interest rate has been raised， the real estate market will embrace a sales booming season in the second half of this year. Yang said that this rate spike will push up the financing costs of the whole real estate industry， whose turnover has been very low. Faced with the tense capital chain， some real estate companies have to give discounts to boost sales and get through such crisis.Shen Jianguang:Exit the tightening monetary policy still earlyShen Jianguang， chief economist at Mizuro Securities Asia， said that the excessive liquidity problem is hard to solve in the short run and this is also why the Chinese government decides to raise the interest rate and also the deposit reserve ratio. Since the inflationary pressure became more prominent in the second half of last year， the central bank has adopted the “stable but tight” monetary policy.Since stabilizing the prices is the primary task this year， and the economic growth is still robust， it is still early to talk about loosening the monetary policy. It is estimated that the tight monetary policy will continue until the inflation rate stays in a controllable range.
