1994 and 1995, China experienced the worst inflation in history. The most direct way to deal with this problem is to raise interest rates and curb inflation by reducing the currency in circulation. There is no interest rate before 1996 in your chart. In fact, from 1994 to 1996, the deposit and loan interest rate has been on the rise, reaching its peak in May. At this time, prices have fallen, and the economic growth rate has slowed down due to the interest rate hike, so the central bank began to cut interest rates again, which is also the result of the lagging monetary policy.

In the following ten years, there was no hyperinflation like 1994 in China, so there was no need to raise interest rates sharply. The last two interest rate hikes were to cope with the inflation in 2007 and 10, but the impact of a small interest rate hike should not be underestimated. After all, the current economic volume and money stock are not the same as before 15.