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Experts: Cooling inflation leaves room for policy adjustments (7)

By Lu Hui (Xinhua)

14:03, November 14, 2011

To absorb the excessive liquidity that helps fuel inflation, the government implemented a prudent monetary policy this year. The central bank has raised the benchmark interest rates three times this year and hiked the reserve requirement ratio for commercial banks six times.

Many analysts are of view that China's policymakers will keep interest rates and the reserve-requirement ratios (RRR) on hold at least for the remainder of the year.

"Even with inflation in firm retreat, we feel movement on interest rates is out of the question until well into next year," said Alistair Thornton, an analyst with IHS Global Insight.

"Lowering inflation does not mean that real deposit rates are becoming less negative. They remain firmly in the red, and the government will be mindful of the effect this has on bank deposits and asset markets," he said.

Lian Ping, chief economist of the Bank of Communications said the reserve-requirement ratios (RRR) is unlikely to rise within the year as it is already at historic high.

The Bank of Communications said in a report that it is unnecessary to raise the interest rates since there are considerable drops in price hikes. In addition, the interest rate rise will cause capital inflow as the result of disparity between home and abroad, aggravate the property and local government debt crisis, and furthermore, enhance the medium and small and medium enterprises' funding costs.

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