Experts rule out rates rise, at least for now

CHINESE analysts have brushed aside the possibility of an immediate interest rate increase, predicting a slowdown in inflation for December, a figure yet to be released by statistics authorities.

In its latest report, Shenyin Wanguo Securities projected a rise of 6.1 percent for the consumer price index in December, a key gauge for inflation, compared with an 11-year peak of 6.9 percent in November.

Guotai Jun'an, however, set its estimate at 6.3 percent. Both firms attributed the slowdown to food price rises.

Lu Zhengwei, macro-economy analyst with the Fuzhou-based Industrial Bank, anticipated a growth ranging from 6.2 percent to seven percent, with the median standing at 6.6 or 6.7 percent, still a slight decline from the November peak.

Analyst Li Huiyong, with Shenyin Wanguo, said last year's tightening measures, highlighted by six interest rate increases and 10 reserve-requirement ratio lifts, have started to exert an impact. "Chances of another immediate interest rate rise are slim," he said.

Researcher Lin Zhaohui, with Guotai Jun'an, said that the People's Bank of China will likely spend a couple of months weighing up the new statistics, predicting the next sensitive window for further tightening moves will probably be March.

As the Spring Festival, which falls on February 7 this year, often skews economic statistics for the first two months of the year, combined with uncertainty that has risen from the delay in releasing the figures, Lin said decision-makers will remain cautious during this period.

Lu said the central bank will have to pay close attention to credit growth as an excess rise in credit and bank loans may result in an increase of 27 basis points in the interest rate for loans.

By the end of November, the outstanding balance of loans denominated in yuan with China's financial institutions rose by 17 percent year on year to 26.12 trillion yuan (US$3.5 trillion). The increase was 1.93 percentage points higher than that of December 2006.

Stimulated by the increases in food prices, China's consumer inflation has stayed well above the government-set alarm level of three percent.