Rate hike in Q3: economists

08:26, June 09, 2010      

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China's economic growth will reach 10.8 percent this year and the central government will boost interest rates in the third quarter as a regular economic practice instead of as a move to tighten momentary policy, J.P. Morgan predicted Tuesday.

"In the next five years, the GDP figure in China should be around 8-9 percent and the CPI figure should stay at 4-5 percent," Wang Qian, chief China economist with J.P. Morgan, said Tuesday at a press briefing.

"China will slow down investments and increase personal consumption. But as Europe's economic outlook is still uncertain, future Chinese macro-economy policies will be flexible."

China's GDP grew by 8.7 percent in 2009, and 11.9 percent in the first quarter this year, according to figures from the National Bureau of Statistics (NBS).

China's consumer price index (CPI), a main index of inflation, increased by 2.2 percent in the first quarter from the previous year and rose 2.8 percent in April from a year earlier, data from the NBS shows.

Chinese Premier Wen Jiabao warned last month in Japan that global economic growth remained vulnerable to sovereign debt risks and the possibility of "dragging down the global recovery and triggering a second dip in growth."

But many economists believe China's economy is actually overheating.

"China's economy will see tightening measures, but without stagflation," Wang said.

So far this year, the People's Bank of China, China's central bank, has raised the required reserve ratio three times to the current level of 16.5 percent for the biggest banks and 14.5 percent for smaller ones in an effort to temper inflation and the overheating economy.

Meanwhile, the central government has carried out a series of measures including a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for a second home in order to put the brakes on a lending boom and avoid an asset bubble.

China is aiming to slow credit growth to 7.5 trillion yuan ($1.4 trillion) this year from a record 9.59 trillion yuan ($1.41 trillion) last year, which was driven by a massive economic stimulus program to counter the global economic crisis.

Increasing interest rates is also seen as a move to reduce liquidity and inflation.

"China will increase interest rates twice this year, starting in the third quarter," Wang said.

Reuters cited Bank of America- Merrill Lynch as saying that the Greek debt crisis makes an increase of interest rates "less and less likely" this quarter.

Source: Global Times


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