BIZCHINA / Comments & Analysis - Overseas
China likely to hike interest rates again in 2nd quarter
(XFN-Asia)
Updated: 2007-03-20 14:27
China's central bank is likely to raise interest rates again in the
second quarter, after it announced a 27 basis points increase in the
benchmark one-year deposit and lending rates on Saturday, Standard
Chartered said.
In a research note, Standard Chartered said the central bank's next move
will be data-dependent and probably will not come for some time, but it
expects another hike of 27 basis points towards the end of the second
quarter.
Inflation is seen rising in China over the coming months due to higher
food prices and possible liberalization of utility prices.
There is also likely to be a rebound in fixed-asset investment, Standard
Chartered said.
"We expect the central bank to raise its benchmark rate again by the same
magnitude late in the second quarter," the brokerage said.
"This will also help to curb investor enthusiasm in the stock market,
which the central government is not totally comfortable with," it added.
Credit Suisse economist Dong Tao agreed that another hike is likely this
year.
"Tightening measures could escalate at around mid-year, if the consumer
price index exceeds the three percent ceiling and the stock market
becomes overly speculative," he said.
But Lehman Brothers economist Mingchun Sun said he did not expect further
rate hikes this year, though the central bank is likely to take other
policy tightening measures.
"The People's Bank of China may be expecting CPI inflation and economic
growth to moderate later, despite a very strong start in 2007. We also
expect CPI inflation to fall sharply in the fourth quarter, after peaking
at around 3.0 percent in July, thus we expect the central bank to stay
(keep benchmark rates) on hold over the rest of 2007," Sun said.
He added though that CPI inflation is likely to pick up in 2008, and this
should prompt two further rate hikes next year.
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