CHINA S reserve-ratio increases for banks and threats of price controls on essential goods were likely to prove insufficient to tame inflation, and the central bank would have to raise interest rates further, economists said.
The People s Bank of China on Friday ordered a 50 basis point increase in the amount of money that lenders must set aside, two days after the Cabinet announced measures to tackle inflation. A basis point is 0.01 percentage point.
Monetary policy is being tightened and a rate hike will follow sooner rather than later, said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia who formerly worked for the IMF and the European Central Bank. The next move inevitably would be on rates, Shen said. At Societe Generale, Hong Kong-based economist Yao Wei said last week that China s old-fashioned price stabilization policies will not be enough to reduce the case for monetary tightening. The possibility of more interest-rate hikes by the year-end remains relatively high, she said.
Standard Chartered, HSBC Holdings Plc., BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Mizuho, Royal Bank of Canada, UBS, and Australia and New Zealand Banking Group Ltd. predict that the central bank will add this year to the quarter-point increases that took the benchmark one-year lending rate to 5.56 percent and the one-year deposit rate to 2.5 percent. (SD-Agencies)
