Economists debate if a new cycle of increases has just started Economists have been debating whether the mainland has entered a period of continuous interest rate rises since the central bank raised the cost of borrowing for the first time in nine years last October. They say the rate rise indicates the central government prefers to use monetary tools to rein in runaway growth rather than administrative and financial measures. The National Development and Reform Commission has dismissed speculation that a new round of rate rises is imminent, while its Academy of Macroeconomic Research has said further increases will not be seen until 2006 to 2007. Interest rates are usually decided by factors such as prices of consumer goods and production materials, the balance of supply and demand for capital, and the movement of exchange rates. An insight into the policymakers' rationale can be gained by looking into the reasons behind the last rate rise. Facing breakneck economic expansion, with gross domestic product growth of nearly 10 per cent and fixed-asset investment increasing by more than 40 per cent, the central government implemented tough measures such as a clampdowns on credit, administrative controls and other actions to restrain investment and lending. October's rate rise only came after inflation remained above the central bank's danger level of 5 per cent in June, July and August due to concerns over real negative deposit rates. Economists believe the increase was more symbolic than substantial. It has neither greatly increased the cost of lending nor cooled investment. Officials said any follow-up measures would depend on the effects of the rate rise and prevailing economic conditions. They argue the rise was aimed mainly at consolidating the effects of the macroeconomic control measures. Inflation and the consequent real negative deposit rates are the government's main concern. The economy is still on the fast track, the consumer price index grew 4 per cent last year - the highest since 1997 - and there are now early signs of upward pressure on prices. Production materials continue to record double-digit growth in prices. In November, they grew 10.7 per cent year on year, while energy consumption rose 13.7 per cent. Demand for capital investment is still strong despite the government's credit squeeze. As rural areas have to be urbanised to accommodate more than 10 million rural people every year. Although a series of interest rate increases along the US model is unlikely, the mainland is under pressure to raise rates to keep the yuan's peg with the US dollar. More importantly, the October decision makes it easier for the central bank to raise rates again soon, having overcome opposition from other economic ministries. It also suggests that an even more significant change - an adjustment in the exchange rate - is not politically inconceivable.