Raise the Interest Rates, not the Reserve Ratio

This week, one-year central bank bills interest rates rise again, soared nearly 10 basis points to 3.4982 percent. Up to now, the one-year central bank bills have been up for two consecutive weeks. The current one-year deposit rate is 3.25%, the one-year central bank bills interest rates are now higher than one-year deposit interest rate to nearly 25 basis points.  All those measures have formed an intense financial flow at a short period.

However, the continuous raise of the deposit reserve ratio would increasingly bring side effect in the process of curbing the inflation and liquidity management. The author believe that the price will eventually be the solved by price measure. Raising the interest rate, not raising the reserve ratio is the best way to fight against inflation and expanding the need of the real economy.

Source:Caing.com

Translated and edited by Peng Bo. Write to him at pb.bloomberg@gmail.com.

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