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)