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CPI moderate rise in Q2 triggers no rate hike

By Hao Yan (chinadaily.com.cn)
Updated: 2010-05-25 13:49
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A Bank of China report predicted China's Consumer Price Index (CPI) would rise about 3.7 percent in the second quarter while GDP growth may hit 10.5 percent.

The report released Monday said the CPI would go up 3.8 percent in May and accelerate to 4.4 percent in June, a 3.5 percent rise for the year. The report also predicts a carryover effect in the second and third quarters, especially in June, contributing to a 2 percent rise in the CPI.

A CPI rise exceeding 3 percent indicates galloping inflation.

The report said the monetary policy is still focusing on the fluidity excess. Hence a hike in interest rates is not an option for the near future, as it could bring more pressure on the renminbi appreciation, China Securities News said Tuesday.

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China may consider increasing the deposit reserve ratio or issuing central bank bills, the report said.

Bank of China said the GDP may grow 9.5 percent this year, 0.8 percentage point higher than in 2009, but the growth could slow down in the second half. Consumption and exports are contributing more and more to the growth, while investment-driven growth is fading.

"The central bank utilized a series of monetary policy tools this year, as investment in real estate continued to drop and the manufacturing industry abandoned obsolete capacities. All of these factors contribute to the decrease in capital investment from its peak," said Zhou Jingtong, a researcher at the business development division of Bank of China.

The report also said the economy is not ready yet for a stimulus policy withdrawal. Bank of China called for maintenance of the proactive fiscal policy, an optimization in the expenditure structure, and a moderately tighter monetary policy.