China cuts interest rates, reserve requirement ratio

By Xin Zhiming (China Daily)
Updated: 2008-10-09 00:41

Inflation concern

The interest rate cuts show that policymakers may be facing reduced inflationary pressure, analysts said. The government is to release September inflation figures soon.

In August, inflation rose by 4.9 percent year-on-year, signaling an apparent downward trend after it reached a 12-year high of 8.7 percent in February.
However, some are worried that the inflation level may rise again in the coming months if energy prices are liberalized.

"Inflation could rebound in the coming months and the central bank cannot ignore that potential risk," Ma Ming, economist with the Beijing Institute of Technology, said.

Electricity and oil prices in the country are much lower than the general international level as a result of strict regulation and thus may be hiked to reflect market reality, pushing up inflation, Ma said.

In late June, the government raised the prices of refined oil products by more than 15 percent; and this week, Beijing raised pump prices by up to 4 percent. Analysts agreed that as inflation eases, the authorities may make use of the reduced inflationary pressure to liberalize oil prices.

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