"What we urgently need is higher interest rates. We can use more fiscal investment to offset the negative effect of a shrinking economy caused by interest rate hikes," Xiao said.
However, Wang Jian, a professor with the Chinese Academy of Governance, expressed his worries that more interest rate hikes and a stronger RMB, or the yuan, will increase the pressure of a rapidly-growing foreign reserve for the country as developed countries maintain nearly zero interest rates.
The yuan has gained 5.5 percent over the past year since the country's central bank announced on June 19, 2010 to further reform its exchange rate formation mechanism to add more flexibility.
According to Lau, interest rate hikes underscored the central government's determination to control the rising inflation, but also will draw hot money to the country.
"If the negative interest rate continues, the banking sector's role will become weak as money flies out. One solution is to raise the interest rate for long-term deposits while leaving the lending rate unchanged since the two interest rates still have room for adjustment," Lau suggested.
Warning that the overly tight money policy may rupture the capital chain for small enterprises, Peking University professor Li Yining urged the government to take caution of both inflation and the vice verse, stagflation.
As inflation expectation and the expectation for corporate profitability prospects are two important economic indicators, the government should pay equal importance to both expectations when taking measures to contain money supply, Li said.
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Source:Xinhua
Weekly review
However, Wang Jian, a professor with the Chinese Academy of Governance, expressed his worries that more interest rate hikes and a stronger RMB, or the yuan, will increase the pressure of a rapidly-growing foreign reserve for the country as developed countries maintain nearly zero interest rates.
The yuan has gained 5.5 percent over the past year since the country's central bank announced on June 19, 2010 to further reform its exchange rate formation mechanism to add more flexibility.
According to Lau, interest rate hikes underscored the central government's determination to control the rising inflation, but also will draw hot money to the country.
"If the negative interest rate continues, the banking sector's role will become weak as money flies out. One solution is to raise the interest rate for long-term deposits while leaving the lending rate unchanged since the two interest rates still have room for adjustment," Lau suggested.
Warning that the overly tight money policy may rupture the capital chain for small enterprises, Peking University professor Li Yining urged the government to take caution of both inflation and the vice verse, stagflation.
As inflation expectation and the expectation for corporate profitability prospects are two important economic indicators, the government should pay equal importance to both expectations when taking measures to contain money supply, Li said.
1 2 3
Source:Xinhua
Weekly review
