BIZCHINA / News
Interest rates set to rise
By Hong Guan (China Daily)
Updated: 2007-04-20 10:18
The release yesterday of China's key economic figures has prompted market
speculation that authorities might once again raise interest rates to
maintain stable economic growth.
The National Bureau of Statistics (NBS) said yesterday that gross
domestic product (GDP) for the first quarter was up 11.1 percent year on
year.
Zhu Jianfang, a senior analyst with the Beijing-based CITIC Securities
said that although the growth is strong, it has not become "overheated".
The much-hyped consumer price index (CPI) grew by 2.7 percent year on
year during the same period, but in March it rose by 3.3 percent, faster
than the official warning line of 3 percent.
The NBS admitted that "there exists certain inflationary pressure", but
said that if "the lagged-behind effect of a 1.5-percent increase in food
prices last year" was taken into account, the true increase in the CPI in
the first quarter was only 1.2 percent.
Shen Minggao, an economist with Citigroup in Beijing, agreed.
"Inflationary risk is not as serious as the CPI figure (in March) seems
to convey," he said.
Zhu said that despite the alarming March figure, the CPI would not rise
continually. It indicated just "moderate" inflation.
However, given the fact that the CPI, GDP and money supply which
increased by 17.3 percent, 1.3 percentage points more than the central
bank target had all exceeded official benchmarks, economists agreed that
interest rate hikes were likely to follow.
Shen said the central bank might raise the interest rate by 27 basis
points ahead of the May Day holiday. It might also raise banks' deposit
reserve requirement ratio a further two times this year.
So far this year, the interest rate has been increased once and the
banks' deposit reserve requirement three times.
Zhu said pressure on the authorities to raise the interest rate was
increasing.
"The central bank will closely monitor the growth trends of prices,
investment and lending to decide whether it is necessary to take prompt
measures," he said.
On hearing the latest figures, Standard Chartered Bank adjusted its
forecasts.
"We hereby upgrade our 2007 GDP forecast to 10.6 percent, from 9.6
percent," it said in a note to its clients.
The bank also upped its interest rate forecast, saying that it would rise
twice before the end of the year, once in the second quarter and once in
the third.
"We believe that two interest rate hikes are now only a matter of time,"
the note said.
HSBC (China)'s chief economist Qu Hongbin said that given the
macroeconomic figures, he expected authorities to impose further
tightening measures, such as controls on liquidity, lifting banks'
reserve ratio and raising the interest rate. But he said he did not
expect the economy to slow down significantly.
"We believe the central bank still has room to lift the reserve ratio by
a further 2 to 3 percent in the coming quarters."
Qu said that lifting the interest rate "should help cool investment
overheating, CPI inflation and over-optimism on returns from yuan-based
assets, and discourage unwanted portfolio inflows".
He also believed the central bank would raise the interest rate by at
least 27 basis points in the coming weeks, followed by at least one
further hike in the second half of the year.
Lehman Brothers made the boldest forecast, saying the rate would rise by
27 basis points in the coming weeks, "possibly as soon as today".
It said in a note that the good news for the economy was that retail
sales in March grew 15.3 percent year on year, 60 basis points higher
than in the first two months, which suggested consumption had picked up
strongly.
(For more biz stories, please visit Industry Updates)
Related Stories
� Market falls 4.5% amid rate-hike speculation
===========================================================================
� Pressure on central bank to up rates
===========================================================================
� Report: China to raise interest rates within 6 months
===========================================================================
Learn Chinese, Learn Mandarin online
No comments:
Post a Comment