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PBOC: China inflation may rebound in second half
Published on: 2009-07-29
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July 28 (Bloomberg) -- China’s rate of inflation may rebound in the second half of this year, the People’s Bank of China said today, adding that it plans to keep policies stable to ensure an economic recovery.


China’s economy is at a “critical” stage, the central bank said in a report on its Web site today. It said the acceleration in growth in the second quarter from the first had exceeded expectations.


Premier Wen Jiabao and the ruling Communist Party’s Politburo last week pledged to maintain a “moderately loose” monetary policy, countering speculation that record new loans and surging asset prices will trigger a tightening. Consumer prices fell 1.7 percent in June from a year earlier, the fifth monthly decline and the biggest drop since 1999.


“Any possible problem with inflation is a long way away,” said Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong, adding that concerns could mount by late 2010.


China’s economy grew an annualized and seasonally adjusted 14.9 percent in the second quarter from the previous three months, up from an 8.5 percent gain in the first quarter, the central bank said.


Those numbers compare with the previously announced 7.9 percent gain from a year earlier.


Credit Boom


New lending tripled to more than $1 trillion in the first half of 2009 from a year earlier, fueling concern that banks are taking on too much risk and bubbles are inflating in stocks and property. The Shanghai Composite Index has climbed almost 90 percent this year.


The People’s Bank of China is likely to raise interest rates next year as a recovery strengthens, according to a Bloomberg News survey of economists on July 16.


“For now, like central banks around the world, China’s is going to be very patient,” said David Cohen, an economist with Action Economics in Singapore. “They’re not going to risk derailing a recovery by tightening too early.”


The People’s Bank of China should maintain continuity and stability in macro-economic policy and consolidate the foundation for an economic rebound, the bank’s Financial Survey and Statistics Department said in its 10-page report.

“The decline in the CPI is likely to reach bottom in the third quarter this year,” it said.


Banks’ capital-adequacy ratios, measures of capital reserves against assets at risk, have dropped as a result of the surge in lending in the first half, the central bank said.


“The rapid decline in capital adequacy ratios and strengthened risk management may constrain the banking industry’s ability to sustain rapid growth in credit,” the bank said.

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