GDP could grow by 8.6%

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China's GDP is forecast to grow 8.6 percent this year if the government eases its monetary policy, the Hongkong and Shanghai Banking Corp Ltd said in a report released on Tuesday.

The government reported 8.1-percent growth in the first quarter.

"The first quarter is the weakest quarter for China, but there is improvement in economic growth," said Frederic Neumann, managing director and co-head of Asian economic research at HSBC.

The bank's forecast is higher than the target of 7.5 percent set by the government in March.

The bank also forecast growth next year would improve to 8.8 percent.

It expects the government to carry out "at least another 100 basis points of reserve requirement ratio cuts in the first half and a 25 basis point rate cut toward the middle of this year" to encourage consumption and revive the economy.

China has lowered reserve requirement ratios twice since November, but it hasn't changed interest rates since the latest increase in July.

GDP growth could slow to 7 to 7.5 percent, a "hard landing in Chinese economic terms", without further economic stimulus from the government, Neumann said.

The central bank widened the daily trading limit of the yuan against the US dollar to 1 percent from the previous 0.5 percent, effective from Monday.

"This is a very reassuring message to the market because it means support measures are not just adding more money ... but also signaling ... that we are willing to push ahead with reform," he said.

The International Monetary Fund on Tuesday raised its forecast for China's economic growth to 8.2 percent this year, up 0.1 percentage point from its January prediction.

The World Bank has cut its forecast for China's growth rate this year, saying it may drop to a 13-year low. It forecast a growth of 8.2 percent, compared with the 8.4 percent it estimated in January.

Reducing interest rates should be the "last resort" to shore up economic growth as rates in China are relatively low, according to Ardo Hansson, the World Bank's lead economist for China.

"The real driver of growth is private consumption for this year and the next two years," said Neumann.