The enterprises will accumulate raw materials because they can make profits simply by borrowing, thus aggravating raw material shortage, pushing price level further up and leading funds to circulate in retailing rather than be invested in manufacturing. Therefore, price level is one indicator the central bank must closely monitor when considering interest rate policy.
In addition, the central bank must also take into account the issue of Forex arbitrage. Over the past two years, capital inflows have led to substantial rise in Forex position. The amount of capital inflow is directly linked to domestic and foreign interest rate differentials.