A Chinese official here Tuesday that the central government has not yet decided whether to increase interest rate in the third quarter of this year since the government is still waiting to see effects of the latest stringent monetary policy.

Zheng Jingping, spokesman with the National Bureau of Statistics (NBS), told a press conference in Beijing that a series of macro control measures have been launched by the government in the past months, such as the central bank's raising of the benchmark lending rates by 27 basis points in late April and the recent hike of reserve ratio for commercial banks by 0.5 percentage points.

"The macro control policies are showing their effects step by step, but we need to further observe the market before launching new decisions for further control measures, since some policies have been in operation even less than one month," said Zheng.

Zheng admitted that the rapid growth of money supply and lending has been a major problem in China's economic growth, and a stringent monetary policy must be adopted by the government to ease the soaring investment and lending.

China's economy surged a year-on-year 10.9 percent in the first half of 2006, roaring ahead despite a slew of measures imposed by the government to ease investment growth.
An economic report released last Tuesday by the institute of macro economy study under the National Development and Reform Commission (NDRC), the country's industry watchdog, warned a new round of investment heat having appeared in China, and macro control should be tightened to cool down the economy.

The report suggested a stringent monetary policy for the central government to restrain the heated investment and lending, and believed the current control measures are not enough to curb the overheated lending.

A mild increase in the interest rate for both deposits and lending is suggested by the report, with the rate to go up by 0.25 percent for each round of readjustment.

This will not only help restrain oversupply in both money and products like steel, cement and others, but also leave more space for further economic readjustment in the future, said the report.

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