Bloomberg News

China Unlikely to Reduce Rates, Former PBOC Adviser Yu Says

October 21, 2011

(Updates with stocks in sixth paragraph, Yu’s growth estimate in eighth paragraph)

Oct. 21 (Bloomberg) -- China is unlikely to cut interest rates or change its monetary policy stance until the pace of consumer price increases slows to less than 5 percent, Yu Yongding, a former central bank adviser, said.

“Inflation is under control and the inflation rate will fall,” Yu, a researcher with the Chinese Academy of Social Sciences, said in Beijing today. “I don’t think there will be any major changes in policy either further tightening or loosening” until cost-of-living gains decline, he said.

China has paused raising interest rates since July after five increases in less than a year to curb inflation that’s exceeded the 2011 target every month. Investors are speculating that the central bank may loosen monetary tightening as Europe’s debt crises hurts export demand and after third-quarter economic growth was the slowest in two years.

Inflation moderated to 6.1 percent in September from a year earlier after reaching a three-year high of 6.5 percent in July. Gains in consumer prices will drop to 5.8 percent by the end of the year, Yu said. He estimated the inflation rate may be less than 5 percent next year as food and pork prices stabilize.

That rate is “still too high” and will prompt the government to adopt a stable monetary policy stance with “no new initiatives,” he said.

China’s stocks fell for a fourth day today, extending the benchmark index’s worst weekly drop in five months, on concern slowing economic growth and tight monetary policies will hurt earnings. The benchmark Shanghai Composite Index slipped 0.6 percent as of the 11:30 a.m. local-time break.

No ‘Substantial’ Fall

The world’s second-biggest economy won’t see a “substantial” fall in growth, or a so-called hard landing, in the “foreseeable future,” Yu said.

China can still achieve 7 percent to 8 percent expansion even amid a global recession next year as the government will be able to introduce a stimulus if needed, Yu said.

In contrast, Societe Generale SA global strategist Albert Edwards said yesterday investors should prepare for a “hard landing and yuan devaluation” in the world’s fastest-growing major economy.

“China is undoubtedly a severely imbalanced economy, suffering from credit-fuelled investment and housing excesses that could easily spin out of control and crash,” London-based Edwards said in a report yesterday.

--Lifei Zheng, Sophie Leung. Editors: Nerys Avery, John Liu

To contact the reporter on this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net


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