Are the Interest Rate Increase and RMB Appreciation Favorable or Harmful

On October 20, the People s Bank of China(PBOC)increased the current benchmark interest rates on loans and deposits. Some are happy while others are worried upon hearing the news. It is a common view for many people that "the rich prefer interest rate increases while the poor love decreases. Well, is it really the case that interest rate increases will indeed benefit the rich while harming the poor? Meanwhile, the continuous appreciation of RMB in recent days has become a hot topic of common people. "What have we gained or lost from it? "

Are interest rate increase and RMB appreciation harmful or beneficial? This is indeed a question.

In a survey made by a website, nearly half the interviewees believe that the trading volume of the property market will plummet; nearly 40% hold that it has little impact on it, and only 10% think that the property market will continue the previous hot sales and high price

However, data show that the total turnover of Jinan property market has surpassed 2,000 units, an increase of 30% over that of September. In Qingdao, house sales volume in the last two weeks has exceeded 8,000 units, and will reach ten thousand units in October, showing an obvious increase over September.

In respect of sales volume, insiders believe that the property market sold better in October than in September. However, others have the opinion that the increased rate of property supply has obviously exceeded that of sales volume, which shows that "sales have slowed down". The game results between RMB appreciation and property price, is not clear in the short term.

Dong Yanling, vice president of the Regional Economy Research Institute of Shandong Economic University, believes, a major impact of RMB appreciation is that it will possibly rein in the export of China's goods and labor, while it is conducive to the import of overseas goods and labor. Because many China's export industries are labor-intensive, the RMB appreciation will reduce the scope for profits, and even cause shutdown of these enterprises, further affecting the employment and causing severe unemployment problems.

In aspects of advantages, the purchases of imported products, travelling and studying abroad, etc., has become cheaper.

Dong Yanling believes, the RMB appreciation itself will bring counter-active effect. It will reduce the expectation of further appreciation of RMB exchange rate to some degree and restrict the influx of hot money. Besides, the RMB appreciation will limit the excessive increase of foreign reserves by reducing trade surplus, so as to reduce the pressure for more RMB to be put into circulation and will restrain the currency inflation. The reasonable and scientific appreciation will have good effects on dealing with the problems of China's price increases.

By Sun Luxi