Economist: China may raise interest rates in Q3

13:48, April 22, 2010      

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The growth rate of China's consumer price index (CPI) is likely to hit its highest point for 2010 in June or July, and the central bank may raise interest rates in the third quarter, said Ha Jiming, chief economist with China International Capital Corporation (CICC).

"Although China's GDP growth rate was almost 12 percent in the first quarter of 2010, maintaining economic growth still seems to be the top priority for China's policymakers," Ha said.

Last year's low figure was one reason for the high GDP growth rate in the first quarter. On the other hand, the growth of fixed-asset investments remains robust, while consumption and net exports are relatively stable with moderate growth.

Ha noted that we should judge the recovery of overseas demand on the basis of total exports rather than net exports. A surge in imports was an important reason for the trade deficit in March, representing China's strong recovery trend, with dramatic increases in raw materials and auto products imports.

Ha predicted that the April CPI growth rate would stand at around 2.7 percent due to stable food prices. The CPI growth rate is likely to jump to 4.5 to 5 percent in June and July, and the central bank may raise interest rates in the third quarter.

As to the housing issue, which has sparked hot discussion, Ha said that soaring housing prices in July have brought the risks of an asset bubble.

"There will probably be more policy measures to curb housing prices, and a property tax may be introduced," Ha said.

However, he also pointed out that the government will be cautious in this process because a huge fluctuation may impact economic growth.

Property prices will continue to rise in the coming three to five years, and face considerable pressure until China's demographic dividend – economic growth due to a rising number of working age people – turns to demographic debt, said Ha Jiming.

By People's Daily Online


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