China inflation may hit 6%, no end to tightening

(chinadaily.com.cn)

Updated: 2011-04-06 14:03

BEIJING - Chinese inflation may top an annual rate of 6 percent in the coming months, preventing any relaxation of monetary tightening, the China Securities Journal said on Wednesday, a day after the central bank raised interest rates for the fourth time since October.

"Under severe controls from the central bank, monetary conditions fuelling price rises have clearly been curbed. But inflationary pressure still cannot be overlooked," the newspaper said in a front- page commentary.

"Keeping inflation in check remains the focus of current monetary policy. There is still room for interest rates, the reserve requirement ratio and the exchange rate to move higher," it added.

China increased benchmark one-year deposit and lending rates by 25 basis points on Tuesday, raising suspicions that data next week may show inflation rose more than expected in March.

The newspaper cited market estimates that the consumer price index might have hit a 32-month-high of 5.2 percent in the year to March and that the world's second-largest economy might grow 9.5 percent in the first quarter, relieving any concern that interest rate rises would hurt economic expansion.

"It's unlikely that monetary policy will be loosened in the second quarter or even over a longer period of time," the newspaper said, adding that CPI will probably stay above 5 percent and even hit 6 percent year-on-year in the second quarter.

China might allow the yuan to rise more than 5 percent this year, it said, adding that the country would also need to raise banks' reserve requirements in order to absorb excess cash, partly arising from maturing central bank bills and repos.