China’s inflation rate could accelerate to more than 5 percent by the end of the year, as government measures to cool lending will have little effect, said Tao Dong (陶冬), chief Asia-Pacific economist at Credit Suisse AG.
“The reserve-ratio hike will have no real effect on draining liquidity, it’s only a symbolic measure,” Tao said at a conference in Shanghai Saturday. There may be a “rush of interest-rate increases” at the end of the year, he said.
The central bank this month ordered lenders to set aside a larger proportion of deposits as reserves and has guided bill yields higher after this year began with a surge in lending. Inflation accelerated to a more-than-forecast 1.9 percent last month and GDP climbed 10.7 percent, the fastest pace since 2007, the statistics bureau said on Thursday.
Since October, policy makers have said managing inflation expectations is one of the government’s central objectives. The central bank will likely act sooner than previously anticipated to contain prices, a Bloomberg News survey of economists showed.
“Credit and liquidity are likely to stay quite loose for a long while,” Tao said.
The central bank said this week it will limit credit expansion this year after record lending last year sparked risks of resurgent inflation and asset bubbles. Asset-price gains, particularly in property, are creating problems for the government to guide the economy, Ma Jiantang (馬建堂), the head of the statistics bureau, said on Thursday.
Still, Tao said interest-rate hikes may cause the property market to enter a consolidation phase and new supply will cool prices.
“New housing supply will come onto the market around midyear and the government will restrict state-owned enterprises from investing in real estate, which will help cause a correction in the property market,” Tao said.
Tao also said he expects the yuan to appreciate as China’s domestic demand grows.
“In five years, when domestic consumption may really pick up, we may see the yuan appreciate to 4 yuan to the dollar,” Tao said.
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