CHINESE|ENGLISH

China likely to raise interest rates further (08/08/2011)

Updated: 2011/8/8 10:28:00

BEIJING - China is likely to increase benchmark interest rates again in the near term to curb inflation, according to the latest comments by analysts.

A let-up of the government´s tightening measures in the third quarter should not be expected, chief economist Li Xunlei of Guotai Junan Securities was quoted by the Securities Daily newspaper as saying.

The possibility of more interest rate hikes in the third quarter can not be ruled out, said Li.

China´s inflation escalated to a three-year high of 6.4 percent in June. The government is expected to announce July´s consumer price index, the main inflation gauge, this week.

The central bank has raised interest rates three times and increased its reserve requirement ratio for banks six times so far this year to tighten monetary supply and cool inflation.

Li said the reserve requirement ratio is already at a record high of 21.5 percent and has limited room for further rises.

Industrial Bank´s chief economist Lu Zhengwei said there is big chance that another interest rate hike will occur in August, according to the Securities Daily.

Fighting inflation will remain China´s top priority during the second half of the year and the nation will continue its prudent monetary policy, the central bank said Monday.

Analysts said market liquidity will also continue to have an impact on inflation.

Li forecast China´s new bank lending in July to reach around 600 billion yuan ($93.2 billion). That would be lower than 633.9 billion yuan in June but up 12.6 percent year-on-year.

Lu predicted new loans for July to stay around 550 billion yuan, slightly higher than 532.8 billion yuan of last July.

Shenyin & Wanguo Securities analyst Li Huiyong put the figure at 623.5 billion yuan, noting that further increases of interest rates and the reserve requirement ratio are both likely.

Source: Xinhua

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