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China may delay rate rise
By Wang Yanlin |
May 21, 2010, Friday
|
Online Edition
Online Edition
CHINA may postpone raising interest rates to the second half this year, despite recent jumps in consumer prices, which analysts said can't outweigh the uncertainties in the global economy.
Morgan Stanley said in a report that the central bank may move the rate in the second half, revising its previous estimate in the first six months. Deutsche Bank AG predicted only a single 27 basis point move this year, from an earlier forecast of two to three increases.
Although the Consumer Price Index, the main gauge of inflation, rose to an 18-month high of 2.8 percent in April - and has been above the benchmark one-year deposit rate for three consecutive months - it was mainly driven by surges in food costs, which a simple interest rate increase can't address, said Li Maoyu, an analyst at Changjiang Securities Co.
"The inflationary pressure will become mild in the future with the run-out effect of a low comparative base and fewer natural disasters," Li said. "The central government is more concerned about the world economic trend now. The decision makers are closely following issues like what kind of damage will the European sovereign debt crisis bring to the world economy."
The People's Bank of China has kept the one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent after cuts in late 2008 to counter the influence of the global financial crisis, which led to slumping exports.
If China raises the interest rate immediately, it would mop up market liquidity and prevent the economy from overheating. But if Europe, the biggest destination for Chinese exports, suffers a nosedive in consumption and demand, China would have a double whammy effect and its growth would be curbed, analysts said.
The European Union is China's largest trading partner. It bought more than 20 percent of China's overseas sales in the first four months.
Morgan Stanley said in a report that the central bank may move the rate in the second half, revising its previous estimate in the first six months. Deutsche Bank AG predicted only a single 27 basis point move this year, from an earlier forecast of two to three increases.
Although the Consumer Price Index, the main gauge of inflation, rose to an 18-month high of 2.8 percent in April - and has been above the benchmark one-year deposit rate for three consecutive months - it was mainly driven by surges in food costs, which a simple interest rate increase can't address, said Li Maoyu, an analyst at Changjiang Securities Co.
"The inflationary pressure will become mild in the future with the run-out effect of a low comparative base and fewer natural disasters," Li said. "The central government is more concerned about the world economic trend now. The decision makers are closely following issues like what kind of damage will the European sovereign debt crisis bring to the world economy."
The People's Bank of China has kept the one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent after cuts in late 2008 to counter the influence of the global financial crisis, which led to slumping exports.
If China raises the interest rate immediately, it would mop up market liquidity and prevent the economy from overheating. But if Europe, the biggest destination for Chinese exports, suffers a nosedive in consumption and demand, China would have a double whammy effect and its growth would be curbed, analysts said.
The European Union is China's largest trading partner. It bought more than 20 percent of China's overseas sales in the first four months.
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