Delay seen in interest rate hike till Q3 end
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China may delay its interest rate increase until the end of the third quarter due to rising external uncertainties despite expectations of inflation, said BNP Paribas economists yesterday.
China's Consumer Price Index, the main gauge of inflation, rose 3.2 percent year on year in April. The one-year key deposit rate is 2.25 percent, which is negative against current inflation.
"Growth is the priority for China," said Chen Xingdong, managing director and chief economist at BNP Paribas Securities (Asia) Ltd. "China is facing three drags on its growth - a slowdown after stimulus measures waned, structural adjustment and external sovereign credit risks."
So an interest rate increase, which is expected to tame inflation, may be delayed, according to market observers.
The sovereign debt risks in Europe have caused the euro to tumble in May to a four-year low against the US dollar, and sparked concerns about economic instability and a double-dip recession.
Some economists had expected an interest rate to rise as early as this month.
China has rolled out structural adjustments to cool the red-hot real estate market and cut investment in high-polluting industries. Other measures included a slowdown in credit growth and issuance of central bank bills to cool a possible overheating in the economy which grew 11.9 percent in the first quarter.
As the government bids to avoid the double effects of tightening monetary measures and external worries, it may delay an interest rate hike to late third quarter or the fourth quarter, Chen said.
