China's central bank would possibly raise interest rates in early June in another policy tightening to tame rising inflation that has eroded the livelihood of many in the country.
Analysts have wildly expected another 25 basic-point rise in the benchmark one-year depositing and lending rates during the coming Dragon Boat Festival holidays, a report by the People's Daily on Monday said.
The three-day Dragon Boat Festival holiday, which ends next Monday, may be the time when the People's Bank of China, the central bank, is likely to announce another interest rate increase, UBS Securities Co said in a note to its customers.
After inflation hovered at more than 5 percent in March and April, it probably will surge to more than 5.5 percent in May, forcing the central bank to pedal heavily on the brake.
"Although China's economic growth has shown signs of moderation, inflationary pressure remains high and it pushes China to continue to tighten its monetary policies," the brokerage said.
The recent droughts in central and eastern China, the so-called grain house of China, may cause prices of food and grain-related products to rise further and push up inflation.
Premier Wen Jiabao said during his government work report to the National People's Congress earlier this year that the authorities would try their utmost to rein in this year's inflation within 4 percent, a target that seems very difficult to reach as prices of food and imported raw materials keep rising.
China has lifted interest rates twice so far this year, or four times since October. The one-year benchmark savings rate is now 3.25 percent. The real interest rate remains negative because the inflation was 5.3 percent in April and hit a 32-month high of 5.4 percent in March.
Wang Qing, an economist at Morgan Stanley, said last week that China should continue to tighten monetary policies because containing inflation is the top priority.
"China's current relatively prudent monetary policy is a proper choice to deal with inflation," Wang said. He expected the PBOC to raise interest rates in June.
The central bank tends to announce important decisions, like hikes in interest rates or reserve requirement ratio, during holidays or at weekends to minimize impact on the market. China's analysts have anticipated two more interest rate rises by the end of 2011.
By People's Daily Online
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