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Rise of Foreign Currency Interest Rate Exerts No Influence on RMB
Recently, People's Bank of China declared the increase in the deposit and loan interest of US dollar, pound sterling, Euro and HK dollars and the rise of deposit interest of Canadian dollar and Swiss Franc. Undoubtedly, this would increase the pressure exerted by foreign currency interest on the interest of RMB and there will be more cases of hedging. Would this move affect the interest adjustment the central bank made on RMB to cause the corresponding rise of RMB interest?
Professor Shi Yanping, Director of International Finance Department of China Foreign Trade University deems that under the condition of an open economy, interest is a sensitive barometer indicating changes in economy. However, it must have a prerequisite, namely no foreign exchange control, in which domestic currency interest will be influenced by foreign currency interest. Due to the existence of capital accounts control in China there would not be any significant change in RMB interest if taking the current economic situation into account.
The rise of foreign currency interest is mainly caused by the raise of US's interest for slowing down its fast economic growth. Many countries fear that their domestic dollars will outflow into the US, thus raising the deposit interest of USD and such a pressure also exists in China.
Taking the domestic economic condition into account, the present low interest policy is aiming at stimulating consumption, expanding investment, lowering enterprises' costs and accelerating economic growth. Up to now, domestic demand is still not strong enough, so low interest policy will still play a significant role and will go on like this for a period of time.
The raising of foreign exchange interest will only exert influence on foreign exchange depositors and import and export companies needing a lot of foreign exchange. It will exert no influence on the life of the majority of the ordinary people.
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