China’s Central Bank announced today that it will maintain interest rates at current levels, despite foreign pressure to raise them. In the past 9 years, China’s Central Bank has only raised interest rates one time. China’s economy is unusual in that it requires an extraordinary amount of investment (40% of GDP) to continue expanding. As a result, the central bank must maintain cheap and easy access to capital. For many years, Chinese interest rates have been kept below the rate of inflation, allowing investors and entrepreneurs to borrow at negative rates, in real terms. China refuses to capitulate to international pressure, and adjust its exchange rate regime to a floating system. CNN reports:

"We are gradually moving toward allowing the market to determine the yuan’s exchange rate. But there’s no timetable for that to happen," the news agency quoted Guo [a senior Chinese official] as saying.

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