Opinion split on need for rate rise
By Zhang Fengming |
July 14, 2011, Thursday
|
Print Edition
Print Edition
ECONOMISTS are divided whether China needs more interest rate increases following the release of a slate of economic data yesterday.
China's economy and industrial output grew faster than expected while the nominal retail sales pointed to a resilient consumption, indicating that China is heading for a soft landing, or a downturn in the economy but not a recession.
The country's gross domestic product grew 9.5 percent in the second quarter as it slowed from 9.7 percent in the first three months.
Industrial output grew 15.1 percent in June and retail sales gained 17.7 percent last month. Fixed asset investment stabilized at 25.6 percent in the first half.
Economists from Credit Agricole said that China's GDP is slowing and real consumption, including the impact of inflation, is also weakening, which means there is no need to raise interest rates as the economy is already heading for a soft landing.
The French bank expected economic growth to keep slowing in the second half with inflation to peak soon.
"There is no need for more aggressive interest rates hikes this year as inflation will peak soon," said Dariusz Kowalczyk, a senior economist at Credit Agricole, yesterday. "We expect two to three more reserve requirement ratio increases this year to manage liquidity."
China has already raised its interest rates five times since October to tame a credit-driven inflation following the total of 17.6 trillion yuan (US$2.7 trillion) in new yuan loans in 2009 and 2010. The one-year key deposits rate is now at 3.5 percent now, still lagging inflation.
Qu Hongbin, HSBC's chief economist in China, also said that no more interest rate hikes are needed this year despite the de facto negative interest rate.
"We stick to our call for two more reserve ratio hikes and no interest rate hike for the rest of this year," Qu said.
But Industrial Bank and Royal Bank of Scotland believed at least another interest rate hike is needed to bolster the fight against inflation, which rose to a three-year high of 6.4 percent in June. RBS said there ''is the possibility for a 0.25 percentage point rate hike in August."
China's economy and industrial output grew faster than expected while the nominal retail sales pointed to a resilient consumption, indicating that China is heading for a soft landing, or a downturn in the economy but not a recession.
The country's gross domestic product grew 9.5 percent in the second quarter as it slowed from 9.7 percent in the first three months.
Industrial output grew 15.1 percent in June and retail sales gained 17.7 percent last month. Fixed asset investment stabilized at 25.6 percent in the first half.
Economists from Credit Agricole said that China's GDP is slowing and real consumption, including the impact of inflation, is also weakening, which means there is no need to raise interest rates as the economy is already heading for a soft landing.
The French bank expected economic growth to keep slowing in the second half with inflation to peak soon.
"There is no need for more aggressive interest rates hikes this year as inflation will peak soon," said Dariusz Kowalczyk, a senior economist at Credit Agricole, yesterday. "We expect two to three more reserve requirement ratio increases this year to manage liquidity."
China has already raised its interest rates five times since October to tame a credit-driven inflation following the total of 17.6 trillion yuan (US$2.7 trillion) in new yuan loans in 2009 and 2010. The one-year key deposits rate is now at 3.5 percent now, still lagging inflation.
Qu Hongbin, HSBC's chief economist in China, also said that no more interest rate hikes are needed this year despite the de facto negative interest rate.
"We stick to our call for two more reserve ratio hikes and no interest rate hike for the rest of this year," Qu said.
But Industrial Bank and Royal Bank of Scotland believed at least another interest rate hike is needed to bolster the fight against inflation, which rose to a three-year high of 6.4 percent in June. RBS said there ''is the possibility for a 0.25 percentage point rate hike in August."
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