Thu, Jun 24, 2010 page12

• China to raise rates in Q3, HSBC says

  TAIWAN NOT LIKELY The HSBC chief economist said that Taiwan would likely wait until next year to raise its interest rates because there was no inflationary pressure

  • By Ted Yang / STAFF REPORTER
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  China is likely to raise interest rates in the third quarter of this year to slow down its red hot economic growth, while Taiwan is unlikely to raise its policy rates until next year because of a lack of inflationary pressure, an HSBC chief economist said yesterday.

  “It is our view that China’s 12 percent growth [in the first quarter] was in effect too fast, exceeding its ideal and sustainable growth rate of between 9 percent and 10 percent,” Hong Kong-based economist Qu Hongbin (屈宏斌) told a media briefing.

  Qu said that overly rapid GDP growth would lead to an overheating economy and in turn cause inflation to surge, adding that the Chinese government has changed its “moderately loose” monetary policy to “moderately tight” as it has raised its reserve requirement ratio three times since the beginning of this year.

  The consumer price index (CPI) in China has topped the benchmark of 3 percent, while last month’s producer price index reached 7 percent, an indication that the economy is overheating, Qu said, adding that he expected the CPI to rise between 4 percent and 4.5 percent in August or September.

  Poised to control public expectations of rising inflation, China is expected to raise its policy rates — lending and deposit interest rates — by a moderate 27 basis points in the third quarter, while its reserve requirement ratio will likely be raised two to three times in the next few months, he said.

  As for whether Taiwan’s central bank will follow suit in hiking interest rates this year, Qu said ­inflationary pressure has yet to emerge in Taiwan, adding that he expected that the monetary regulator would not raise interest rates until after this year.

  “The central bank’s top priority is to prevent inflation from occurring. So, based on the current situation, there is no need for the bank to hike interest rates,” he said.

  The central bank is scheduled to hold its quarterly board meeting today.

  Remaining upbeat about Taiwan’s economy in the second half, Qu said the impact of the European debt crisis on Taiwan was limited because the nation’s exports and export orders in recent months still posted better-than-expected growth.

  Qu said HSBC would revise upward its previous GDP growth forecast of 6.4 percent for Taiwan in the next couple of weeks, adding that economic growth for next year would remain about 4.6 percent.

  Taiwan’s exports to China, including Hong Kong, account for 40 percent of its total exports. As long as China’s economy continues to grow, Taiwan will be fine, Qu said.

  “Taiwan needs China more than China needs Taiwan,” Qu said.

  HSBC said China’s recent move to unpeg its currency to the US dollar was nothing but the resumption of exchange rate reforms based on the same principles used prior to the financial crisis, namely the ­establishment of a managed floating exchange rate regime relative to a basket of currencies.

  “The intention of the move was not to let the yuan appreciate, but to allow the currency to fluctuate against the US dollar,” Qu said, adding that the value of the yuan would not rise more than 3 percent or 4 percent per year.

  HSBC said that flexibility, rather than appreciation, would be the watch-word in the coming quarters, but that the possibility for small depreciation of the yuan against the US currency could not be ruled out, especially if the euro falls further.

  Also See: For exporters to China, optimism on currency
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