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China should raise rates to tame inflation: C.bank adviser

China should gradually raise deposit rates to curb inflation, which could accelerate in the first quarter as festive spending over the Lunar New Year holiday push up prices in the world's No. 2 economy, a central bank adviser was quoted by Dow Jones Newswires as saying.

January 29, 2011 / 01:08 PM IST

China should gradually raise deposit rates to curb inflation, which could accelerate in the first quarter as festive spending over the Lunar New Year holiday push up prices in the world's No. 2 economy, a central bank adviser was quoted by Dow Jones Newswires as saying.


"Due to seasonal factors like the Chinese New Year holiday, I wouldn't be surprised if CPI goes up to 5% or even higher in the first quarter," Li Daokui told Dow Jones in an interview.


China's real interest rates have been stuck in the negative territory for 11 consecutive months despite two rate increases by the central bank since October.


Li's comments are in line with market expectations that the China's central bank will raise target rates by another 75 basis points this year as part of its long-running anti-inflation campaign.


Li, also a professor at the Tsinghua University, said he expected the consumer price index to rise to 3.8% in 2011, from last year's 3.3%.


The Chinese economy will likely slow to 9.5% this year, from 10.3% in 2010, Li added.

China's December consumer prices ran at an annual pace of 4.6%, slowing from November's 28-month high of 5.1%, although some analysts expect inflation to accelerate to as high as 6% over the course of the first quarter.

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