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China unlikely to reduce rates

CHINA is unlikely to cut interest rates as there are signs that economic growth is stabilizing, economists said.

"I had previously forecast two 27-basis-point cuts," said Ben Simpfendorfer, Royal Bank of Scotland's China chief economist. "I now expect no changes in the policy rate. The economy is stabilizing and the property sector is recovering. Deflation is also expected to stabilize around current levels before narrowing later this year."

China's economy expanded 6.1 percent in the first quarter of this year, a growth within expectations while fixed asset investments and domestic spending performed much better than expected.

China has cut interest rates five times since September to shore up economic growth amid a global slump. But so far the People's Bank of China, the central bank, has left the rates unchanged.

Simpfendorfer raised his forecast of China's economic growth to 7 percent this year from 5 percent.

"The economic growth will accelerate. But the composition of growth remains lopsided and overly reliant on public demand," said Simpfendorfer.

The flood of money in the first four months could unleash another bout of inflation in coming months, which may lead the government to change its current easier monetary policy stance in the future.

Banks in China extended 5.17 trillion yuan (US$757 billion) of new yuan lending from January to April, up 3.37 trillion yuan year on year.

"China may have achieved a short-term recovery at the cost of lower long-term growth," said Alaistair Chan, a Moody's associate economist.


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