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.
(China Daily April 20, 2007)