China should hike interest rates to rein in inflation: Economist

Beijing, Aug. 21: China should adopt quantitative tools or hike more interest rates to rein in inflation, an economist has suggested.

“China still faces tough inflation in the second half of this year, due to the excessive money supply in the past two years, which is still expanding at a rapid growth,” Xinhua quoted China Europe International Business School Professor Xu Xiaonian, as saying at the fifth annual China Bankers Forum.

China’s inflation rate rose to a three-year high and the country’s consumer price index rose to 6.5 percent in July.

According to Xiaonian, inflation can be contained only by ending the current actual negative interest rate.

Former adviser to the People’s Bank of China Fan Gang, however, said that higher interest rates could lead to hot money inflow, and subsequently thwart development of emerging economies.

Fan suggested China should utilize the central bank bill, as it is the only way to regulate market liquidity.

The Chinese Government has given about 20 trillion yuan in new loans over the past two years as stimulus package to combat inflation. (ANI)