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Interest rates to stay put despite inflation

08-23-2010 09:30 BJT

By Li Woke

China is unlikely to raise interest rates this year even if the consumer price index (CPI) might peak this month, an economist told the Global Times Sunday.

"The CPI may possibly surpass 3.3 percent in August, but that's still mild inflation for China," said Lian Ping, chief economist at the Bank of Communications. "The central government is unlikely to increase interest rates by the year end as it will be a temporary inflation."

The price hike in vegetables and grain, pushed up by widespread flooding and speculation, will be the main cause of the increase of CPI, a key measurement of inflation, Lian said.

China's July CPI rose 3.3 percent from a year earlier, the fastest rate since October 2008. The CPI for the first seven months of the year stood at 2.7 percent, below the whole-year target of 3 percent, according to the National Bureau of Statistics (NBS).

"The Chinese government will take measures to beef up the food supply and curb speculation," Lian said. "But it will hardly increase interest rates for the country's economy is slowing down."

In the second quarter, China's economy slowed, as the country started to withdraw from the 4 trillion yuan ($589.02 billion) spending package launched to ward off the economic crisis. The country's economy grew 10.3 percent year-on-year in the second quarter, down from a 11.9 percent surge in the first quarter, the NBS data showed.

The Chinese government started to clamp down on property speculation at the end of last year.

But Morgan Stanley is optimistic, saying GDP will grow by 9.5 percent this year.

Editor:Xiong Qu |Source: Global Times

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