The People's Bank of China's (PBC) decision to raise its loan interest rate is the first step in controlling the country's macro-economy, Stephen S. Roach, Managing Director and Chief Economist of Morgan Stanley, said on Friday.

He said China would tighten its bank loan requirements and publish some other measures concerning interest rates to cool down its overheated economy.

China's central bank announced on Thursday that the loan interest rate would be raised, starting from Friday. The one-year loan rate would increase by 27 basis points, from 5.58 per cent to 5.85 per cent and loans of other terms would be adjusted correspondingly, while the deposit rate would remain unchanged in the adjustment.

Roach said Chinese economy was overheated with a gross domestic product (GDP) growth of 10.2 per cent for the first quarter. The Chinese government would adopt administrative measures to curb the overheated investment in certain sectors since about 7 to 9 million jobs would be annually created if China kept the GDP growth at 7.5 per cent, said he.

Roach indicated that China would be faced with more pressure to keep its export growth at high rate due to the macro-control and increasing protectionism in the United States and Europe. China's economic development would therefore shift to a consumption-driven model from an export- and investment-driven model.

He also noted that the macro-control in the economic field was not related with the appreciation of RMB, and PBC's loan rate increase was not aimed at easing the pressure of the increase in RMB exchange rates.

He said that China would not increase RMB exchange rates rapidly because of the pressure exerted by United State and other G7 countries. He believed that RMB would continue on its path of gradual appreciation.
 
Editor: Yan