Rate cuts cycle likely to start from the second half of 2008, PBOC report

The Global Markets Department of the People's Bank of China released its latest research report yesterday, predicting the CPI figure in December would rise 6.5%-6.6% from the same month of last year, and that export increase rate and inflation level in 2008 would drop notably.

The report points out PBOC is expected to raise the rate twice more in the first half of next year but start to adopt rate cuts in the second half or the fourth quarter.

The rate hikes, as part of the structured adjustment measures taken by the central bank, are intended to increase the appeal of short-term term deposits over demand deposits, tighten deposit liquidity, enable commercial banks to reinforce deposit control, and strengthen the control of PBOC over currency supply.

However, the monetary policies of the central bank are also facing challenges, both from the inflationary pressure at home, and from the expected economic downturn worldwide.