The central bank's top researchers have agreed recently that higher interest rates will help to squeeze asset bubbles and restrain debt expansion, as a tool to be used with broader oversight of financial activities.

"There is room for an increase in interest rates in the short term as industrial product prices and enterprises' profitability have improved since last year," Ji Min, deputy head of the central bank's research bureau, told China Daily over the weekend.

Inflation and foreign exchange rates also have to be factored in before adjusting interest rates, he said.

The central bank's top researchers have agreed recently that higher interest rates will help to squeeze asset bubbles and restrain debt expansion, as a tool to be used with broader oversight of financial activities.

"There is room for an increase in interest rates in the short term as industrial product prices and enterprises' profitability have improved since last year," Ji Min, deputy head of the central bank's research bureau, told China Daily over the weekend.

Inflation and foreign exchange rates also have to be factored in before adjusting interest rates, he said.

 

This photo illustration taken on Feb 9, 2017 shows Chinese 100 yuan notes in Beijing. (FRED DUFOUR / AFP)

Since the first quarter of 2018, negotiable certificates of deposit - a product for financial institutions to invest in the interbank market - will be supervised as part of the framework to assess potential financial risks, especially in the shadow banking business.

Housing loans and cross-border capital flows have been included in the macroprudential framework. Green financing and fintech business also will be considered part of the framework, according to the central bank.

It is in line with the conclusion of the 2017 Central Economic Work Conference, held in December, that it is crucial for major risk prevention to facilitate "virtuous cycles", or sound policies, between the financial sector, the real economy and the property sector.

From a global perspective, the deleveraging process always goes hand in hand with interest rates hikes, as shown by the normalization of monetary policy after abnormal monetary easing programs employed after the global financial crisis, officials said. The US Federal Reserve is predicted to raise interest rates three times this year and the European Central Bank may also stop purchasing assets in the coming months.

During the deleveraging process, the key is to prevent large fluctuations of asset prices, which may lead to new risks, economists said.