1970-01-01 08:33:27
Customers walk in a supermarket in Shenyang, in northeastern China's Liaoning Province June 12, 2007. The CPI released June 12 triggers a new round of debates on the possibility of another interest rate hike. [Reuters]
The National Bureau of Statistics on Tuesday announced that the consumer price index (CPI) for May reached 3.4 percent. The figure well beats the three percent target set by the People's Bank of China for this year and triggers a new round of debates on the possibility of another interest rate hike.
On June 5, China's central bank governor Zhou Xiaochuan said the central bank needs to look at the overall CPI in May to decide whether to raise interest on deposits or not.
Though the CPI increase meets the forecast of investment banks such as HSBC, Goldman Sachs, and Lehman Brothers, these three investment banks do not think China's central bank will raise interest rates to control inflation in the short term.
According Lehman Brothers, the skyrocketing CPI for May was mainly driven by surging food prices, and this reason is a seasonal factor. If it does not continue, then the central bank does not need to hike interest rates soon.
Liang Hong, chief economist for Goldman Sachs China, echoed the same view. "The central bank just raised interest rates last month, so it maybe only requires commercial banks to set aside more deposit reserves to cool inflation," Liang said.
For a country that has a 10 percent economic growth, inflation from three percent to five percent is not a problem, according to a report from HSBC, and the bank believes the central bank will increase interest rates in future, but not immediately.
However, Li Junjie, economist for the National Development and Reform Commission, has a different opinion. He says the interest rate hike can cool inflation.
Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse, believes another three hikes are needed to reduce inflationary pressures as well as to rein in soaring investment and property prices.
A real estate expert in Guangzhou agrees. Han Shitong also expects the central bank to increase interest rates. "The interest rate hikes put more financial pressure on those with mortgages," he added.
Wu Dingjin, vice project manager of Jingwei Real Estate, also concurs, saying the central bank should raise interest rates to control the CPI and inflation. But he warns this is not good for the real estate industry. "For long term, interest rate hikes will lead to higher housing prices."
Some other Chinese economists also rule out the possibility of another interest rate hike in the short term, but insist that scrapping the 20 percent tax on bank deposit interest would be a better
It was pork and egg price hikes that drove up the CPI to 3.4 percent in May, surpassing the central bank's annual target of three percent, so an interest hike is not likely to have a direct impact on it, said Wen Bin, a senior analyst at Bank of China.
He predicted that the central bank will raise interest rates and the deposit reserve rate as well as scrap the tax on bank deposit interest during the latter half of the year.
Scrapping the bank deposit interest tax will be more useful than interest rate hike in attracting household deposits and stabilizing bank reserves, when the real deposit rate is negative, according to Lin Zhaohui, an analyst at Guotai Junan Securities. The high bank deposit interest tax weakens the real effect of an interest rate hike, Lin added.
Ha Jiming, chief economist of China International Capital Co Ltd, believed food price will rise 5-10 percent this year, and CPI will keep rising but may not be out of control. As large inflation may not happen due to a fall in investment growth, there are few possibilities for a near-term interest rate hike, but another one or two hikes are still expected this year, he added.
Income from the deposit interest tax was 45.9 billion yuan last year, while the raised securities stamp tax will contribute 280 billion yuan more, so the financial revenue will not suffer a huge loss from scrapping the bank deposit interest tax, Ha noted.
It usually takes at least two months to judge if an interest rate hike has an effect, so the next hike will fall in mid-July, following the last one on May 19, said Li Huiyong, a senior macroeconomics analyst at Shenyin Wanguo Securities Co.
(chinadaily.com.cn)