Lu sees PBOC eying March and April

08:40, February 25, 2011      

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The Chinese government is expected to raise bank reserve requirement ratio one more time in March and increase interest rates again as early as April, Lu Zhengwei, a senior economist at the Industrial Bank, said yesterday.

Lu has a good track record on predicting the timing of the central bank's previous tightening measures.

"We think the tightening policy will continue, with fighting inflation as the main policy priority," Lu said in a research report yesterday.

"The market has translated the recent weaker HSBC PMI, Middle East unrest and Politburo's caution against wild fluctuation of the economy into factors to push for a stop to the recent tightening measures," he said. "We don't share the view."

The high inflationary pressure, soaring commodity prices and strong credit demand indicate no signs of an economic slowdown, he said, adding that the current tightening policy stance will stay.

Economists are widely expecting the tightening measures to be imposed in the first half of this year to fight inflation. China's Consumer Price Index, the main gauge of inflation, rose 4.9 percent in January.

Banks in China extended 1.04 trillion yuan (US$158 billion) of new yuan loans in January as lenders front-loaded loans on fears of further tightening. The People's Bank of China will closely monitor banks' lending this year and assign different reserve ratios for commercial lenders based on their capital strength.

China shifted its monetary policy from relatively loose to prudent this year. It has raised interest rates three times since October. The reserve ratio has risen eight times since 2010.

Source: Shanghai Daily
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