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Inflationary pressures are easing gradually

ECONOMISTS said yesterday that easing inflationary pressures mean there is more room for the government to ease its monetary policy. However, because inflation slowed less quickly than expected in January, no immediate easing is likely this month.

China's inflation in January slowed to 1 percent from 1.2 percent in December, but this was still higher than an expected 0.8 percent.

"There may be some inflationary risks in the coming months, but China remains on a deflationary path, leaving plenty of flexibility for monetary policy," said Citibank's Ken Peng yesterday.

"Chinese authorities should continue to show vigilance in ensuring the gradual recovery of the economy and to revive expectations for low interest rates. We believe that the central bank will still cut its benchmark rate by 108 basis points within the first half, though the timing of the cut could be delayed," Peng said.

The People's Bank of China has cut interest rates five times since Lehman Brothers collapsed in September.

Developed economies such as the United States and the United Kingdom have cut their interest rates to record lows to drag their economies out of recession.

"Because of stronger-than-expected inflation, February may be an empty period when we see no more monetary easing such as rate cuts," said Lu Zhengwei, Industrial Bank's chief economist, yesterday.

China's ample liquidity in January also lessens the need to cut rates immediately to free-up lending, he said.

Total new debt issued by Chinese banks in January is expected to exceed 1.2 trillion yuan (US$175.7 billion) while economists from China International Capital Corp said the figure would range from 1.4 trillion yuan to 1.6 trillion yuan.

The central bank is expected to announce the figures around the weekend.

Lu forecast more interest rate cuts and reserve-requirement-ratio cuts in March as inflation will drop further and credit growth cannot be sustainable. Lu's last three forecasts on China's rate cuts were all correct.


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