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The raising of interest rates has always been regarded as a powerful tool of monetary policy, however this tool looks a little weak in China. China's inflation now is caused by the excess liquidity of money and the lack of investment channels. The government is increasing its money supply by adding 30% more CNY into the economy every year, and that is simply for the purpose of keeping on the annual 8% GDP augment. With the overflowed money and the only 5 investment channels, stock markets, real estate, bank saving, gold or silver,and foreign exchange, we cannot block the step of CPI. China's stock markets' performance is the worst in the world, the bank saving rates actually is negative if we consider the inflation rates, the real estate markets are controlled by the government strictly and the metal and foreign exchange needs the investors to be equipped with lots of professional knowledges. Thus the CPI's raising high is inevitable. Li said that," the rises in interest rates have been difficult to impose fast enough to keep up with the CPI's pace, making increases in interest rates an indispensable means of limiting inflation." But when the interest rates increase becomes a habit, will it still be useful?
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