China’s accelerating inflation may fail to convince policy makers to raise interest rates this year because food costs, not surging credit, are fueling price gains.
The benchmark one-year lending rate will remain at 5.31 percent, with the deposit rate at 2.25 percent, based on the median estimates in a Bloomberg News survey of economists after the release of last month’s economic data on Friday and Saturday last week.
The yuan may gain about 1.4 percent to 6.65 per US dollar, the forecasts also show.
China, the world’s biggest exporter, may wait for signs of a stronger international recovery before increasing rates from crisis levels, they said.
“A move on interest rates will do little to bring more pigs to market,” said Tom Orlik, a Beijing-based analyst for Stone & McCarthy Research Associates who formerly worked for the UK Treasury.
Food prices are “the villain of the piece,” he said.
Among 19 economists surveyed, 13 forecast that borrowing costs will be unchanged this year. A majority also expect no increase in the deposit rate. Most analysts see higher rates by the end of the first half next year.
China stands apart from Asian economies —including South Korea, Taiwan, Malaysia and India — in keeping borrowing costs at crisis levels even after the Chinese economy bounced back from the global recession and inflation reached a 22-month high of 3.5 percent last month.
The yuan rose yesterday to its strongest since 1993, touching 6.7330 against the greenback and trading at 6.7368 as of 3:25pm in Shanghai. Gains may cool inflation and ease trade tensions.
The People’s Bank of China slashed its interest rates in 2008 to counter the global financial crisis.
At UBS AG, Beijing-based economist Wang Tao (王濤) said she wouldn’t rule out a policy move by the end of the year if economic activity remained “robust” and inflation topped 3.5 percent this month and next month.
“Even though we don’t see any immediate risk of a rate hike, we believe the government may have to re-think its interest-rate position in the next couple of months, when there is more clarity about growth and inflation,” she said.
Economist David Cohen of Action Economics in Singapore agreed.
Last month, loans, industrial output and retail sales topped analysts’ median estimates, while inflation was 1.25 percentage points above the benchmark one-year deposit rate.
So-called negative real interest rates often encourage savers to shift money into assets such as real-estate, sparking risk of bubbles.
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