China likely to further raise interest rates: Analysts

August 7th, 2011 - 2:56 pm ICT by IANS  

Beijing, Aug 7 (IANS) China is likely to increase benchmark interest rates again in the near term to curb inflation, say analysts.

A let-up of the government’s tightening measures in the third quarter should not be expected, chief economist Li Xunlei of Guotai Junan Securities was quoted as saying by the Securities Daily newspaper.

The possibility of more interest rate hikes in the third quarter can not be ruled out, said Li.

Xinhua reported that China’s inflation escalated to a three-year high of 6.4 percent in June. The government is expected to announce July’s consumer price index, the main inflation gauge, in the coming week.

The central bank has raised interest rates three times and increased its reserve requirement ratio for banks six times so far this year to tighten monetary supply and cool inflation.

Li said the reserve requirement ratio is already at a record high of 21.5 percent and has limited room for further rises.

Industrial Bank’s chief economist Lu Zhengwei said there is big chance that another interest rate hike will occur in August, according to the Securities Daily.

Fighting inflation will remain China’s top priority during the second half of the year
and the nation will continue its prudent monetary policy, the central bank said Monday.

Analysts said market liquidity will also continue to have an impact on inflation.

Li forecast China’s new bank lending in July to reach around 600 billion yuan ($93.2 billion). That would be lower than 633.9 billion yuan in June but up 12.6 percent year-on-year.

Lu predicted new loans for July to stay around 550 billion yuan, slightly higher than 532.8 billion yuan of last July.

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