China's excess liquidity will trigger more frequent
interest-rate increases and support asset prices, economists said
yesterday.
Stephen Green, a Standard Chartered Bank senior economist, said
three more interest-rate rises of 0.27 percent each are in the
pipeline - one this year and another two in the first quarter of
next year - amid China's ample liquidity and growing inflation
levels.
Liang Hong, a Goldman Sachs economist, said she expected two
more rate rises this year, up from a previous forecast of one
more.
China has already increased its interest rates on lending and
deposits five times this year and asked banks to put more money
aside from lending eight times this year.
However, high inflation and excess liquidity are adding to
pressure for more austerity measures.
Green forecast that China's October consumer price index, the
main gauge of inflation, will grow 6.3 percent year on year, up
from the September figure of 6.2 percent. While Liang said the
October CPI may fluctuate between 6.8 percent to 7.1 percent.
Liang increased her forecast for China's CPI to 4.8 percent this
year from a previous expectation of 4.5 percent, while the figure
for next year also rose to 4.5 percent from four percent.
The National Statistics Bureau is scheduled to announce the
October CPI figure next week. The People's Bank of China may take
actions if the CPI is higher than expected, economists said.
As the economy is likely to cool down in the second quarter next
year with further austerity measures, no more actions are likely in
the rest of the year.
"With ample liquidity and wage growth, the assets market is
likely to keep booming next year if no more policies are launched,"
said Green.
His view is backed by Moody's Investors Service.
Moody's said the longer-term market prospects remain favorable
for Chinese property developers despite challenges of rapid growth
on financial profiles and a volatile operating environment.
Green said China's inflation may sit at 4.2 percent to 4.5
percent this year, and the figure will slow down to three percent
in 2008 and 2009.
China's economy will grow 11.5 percent this year and slow down
to 10.5 percent next year and further dip to 9.9 percent in 2009,
triggering interest rate cut in 2009, Green said.
Green said China's inflation may have jumped more than 30
percent if not for the central bank's austerity moves.
(Shanghai Daily November 8, 2007)
