Wednesday, June 29, 2011 - 22:39

China Gov Thinktank: June CPI At New High; Need Rate Hike

BEIJING (MNI) - China's consumer price growth is set to hit a new
high for the current cycle in June and the government needs to raise
interest rates to bring real interest rates positive, a government think
tank said Thursday.

"It's inevitable to see a fresh high consumer price index growth in
June (for the current cycle)," said the State Information Center in its
latest research report published in the China Securities Journal.

The think tank, backed by the National Development and Reform
Commission, said recent sharp increase in pork prices, rising house
rents and labor costs are pushing up inflation.

It said despite four rate hikes totaling 100 basis points so far in
the current cycle, real interest rates remain negative, which is against
the central government's intention to improve wealth allocation and
narrow the income gap.

"Depositors are suffering from negative interest rates while people
who borrow are benefiting... Depositors are subsidizing our big state
owned companies and banks," said SIC.

"The government should use more price tools such as interest rates
and the exchange rate in the second half and gradually eliminate
negative real interest rates," it added.

The SIC said while there are calls for loosening policy again,
China's current economic growth and employment condition is normal in
general and the government should stick to its prudent monetary policy

It expects GDP growth to slow to 9.5% in the first half and 9.3%
for the whole year.

China's GDP grew 10.3% in 2010.

The SIC also sees CPI growth at around 5.3% for the first half and
4.9% for the whole year. The central government set a CPI target of 4%
for this year.

But Chinese Premier Wen Jiabao said last week that it's difficult
to meet the 4% target but CPI will stay under 5% for this year.


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