China’s pause in adding to October’s interest-rate increase may reflect the difficulty in reaching consensus as the State Council consults with government agencies, according to Deutsche Bank AG economist Ma Jun.
“It has been difficult to reach consensus on a rate hike,” Ma said in an interview in Hong Kong yesterday, noting that “the People’s Bank of China is not the final decision- maker of monetary policy.”
Accelerating inflation has underscored the risks of delaying monetary tightening in China after lenders flooded the world’s fastest-growing major economy with cash to drive the nation’s recovery from the global financial crisis. A decision making process that relies on consensus may be slowing the government’s response, according to Ma, who previously worked at the International Monetary Fund and World Bank.
Rate decisions tend “to represent different interests in the economy, not just the inflation control objective,” said Ma, the No. 1 China analyst in polls by the magazine Institutional Investor and the top China economist in an Asiamoney survey.
Consumer prices jumped 5.1 percent in November, a statistics bureau report showed Dec. 11. A measure of wholesale costs climbed 6.1 percent, exceeding all 28 estimates in a Bloomberg News survey of economists. Even so, the central bank held off over the weekend on the rate move predicted by firms including UBS AG and Mizuho Securities Asia Ltd.
Inflation may average 4.2 percent next year and is the biggest risk to the Chinese economy, Ma said. In the first 11 months of this year, prices rose 3.2 percent.
“China needs essentially all possible means to deal with inflation,” he said.
According to Ma, the central bank should increase interest rates by 0.75 percentage point by June and raise bank reserve requirements by as much as 2 percentage points. The central bank will allow “a little faster” gain in yuan’s value, which may rise 5 percent against the dollar by the end of 2011, Ma said.
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