Expert:Interest Rate Hike to Lower Inflation Expectation

China's central bank raised interest rates over the weekend for the second time in just over two months. The move is said to be designed to rein in inflation and narrow the gap between the increase in consumer prices and the savings rate. As our reporter Wang Ling finds out, experts say the new move will help refrain inflation expectations for the coming year.

Chinese economists reckon the interest rate rise this time is aimed at inflation and there's more to come next year.Ba shusong, a researcher at the Development Research Center of the State Council says the interest rate rise will help curb the inflation expectation for next year.

"This suggests that after the Central Economic Working Conference decided to return to a prudent monetary policy from the loose monetary policy that was adopted during the global financial crisis, the central bank has accelerated its monetary policy adaptation, in order to curb inflation expectations and to reduce the discrepancy between the interest rate and inflation rate."

According to The People's Bank of China, increasing the interest rate for the second time this year is to show the central bank's firm dedication to curbing inflation. This should help in lowering the market expectation of inflation.

But Zuo Xiaolei, Chief Economist from China Galaxy Securities says it won't work right away.

"The most important purpose of monetary policy is to control inflation. This interest rate rise is definitely aiming at inflation, because we're under great inflationary pressure. But can this solve the problem? Monetary policy never works immediately after one change. It is a gradual procedure, and it will be followed by a series of actions. And it can only start working when the measures accumulate to a certain level."

Li Daokui, a member of the Monetary Policy Committee at The People's Bank of China says there might be more interest rate rises next year.

"The current interest rate level is still under 3%, and the people's general inflation expectation for next year is above 3%. Therefore, there is still room for interest rate increases."

Experts say China is facing sufficient liquidity, high inflation expectation and growing inflation pressure, so it will probably take more than two interest rises to bring down prices.

For CRI, I'm Wang Ling.