The Federal Reserve announced that it cut the overnight interest rate by a quarter of a percentage point, to 4.25 percent.

This has been the Fed's third interest rate cut since this September in an effort to sustain a stable economy. The Fed also suggested that it might further lower the interest rate starting next January. 

The Fed's interest cut further narrowed the interest rate spread between China and the US. Guotai Junan Securities believed that if the Federal Reserve further reduces the interest rate, the Chinese Central Bank will consider raising their interest rate again.

As a result, the interest rate spread between China and the US might become negative. Subsequently, a large amount of speculating capital could flow into China, thus further increasing the pressure of excess liquidity inside the Chinese financial system.

Zhou Xiaochuan, governor of the Chinese Central Bank, admitted yesterday that China felt great concern whether the Fed's interest cut would trigger a new round of global excess liquidity.  

For more details, please read the full story in Chinese. (http://www.morningpost.com.cn/article.asp?articleid=141024)

(China.org.cn December 13, 2007)