Increase the reserve ratio will definitely increase the money that the bank is going to hold and thus it will not invest in elsewhere. By doing this, it will reduce the money supply put into the market and therefore cut the money mobility. By increase the interest rate, it will attract people to save more and spend less. Because interest rate is the opportunity cost to hold money. So if raise interest rate, the cost of holding money will be high and people might want to put money in the bank and thus reduce the pressure on the stock market. However, because people at the moment feel really confident about the stock market and the return for the stock market is really big compared to the interest rate so increasing the interest rate moderately will not have too much effect on the stock market. If the government could double the interest rate, then some people might want to quit from the high risk stock market and put money in the bank.
The effect of raising interest rate on the house market will be as follows: increasing the interest rate will increase the mortgage payment rate and therefore people have to repay at a higher rate if they choose to use a mortgage. This rise in the mortgage rate will put off some people and the demand for the house market may subside. However, there are people speculating in the housing market and the rise of the mortgage rate will not have too much effect on time because they can earn more buy buying a house and sell it 1-2 months later.
Therefore, according to the latest Financial Times article, some economist insist that China should raise its interet rate by a bigger proportion.
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