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CPI decline eases pressure for rate rise
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China's inflationary pressure will continue to ease in the coming months, making an interest rate increase less likely, industry insiders said Friday.

Sun Mingchun, a Lehman Brothers economist, said he expected the Consumer Price Index, the major gauge of inflation, to drop to about 6.7 percent in July from June's 7.1 percent.

"If there is no big natural disaster, the CPI may further fall below 6 percent in August, leaving more room for the regulator to adjust its price control policies," said Sun.

He attributed the drop in inflation to the stabilized supply of food after the government rolled out subsidies for farmers and put some limits on food exports.

In July, the price of agricultural products only rose slightly while the cost of meat fell slightly, according to the National Development and Reform Commission.

Lu Zhengwei, an economist with the Industrial Bank Co, said July's CPI would settle about 6.5 percent after food costs, the main driver of inflation since the fourth quarter last year, become less prominent.

Jiang Chao, an analyst with Guotai Jun'an Securities Co, also estimated CPI would slow to 6.5 percent in July.

At the beginning of the year, Stephen Green with the Standard Chartered (China) Ltd, predicted the government may raise the interest rate two to three times to curb inflation. But he said Friday there would probably be no interest rate increase in the near term, given the eased price advance and slowed economic expansion. In the first half, China's gross domestic product grew 10.4 percent, down from 10.6 percent in the first quarter and 11.9 percent last year.

Last week, the central bank did not mention the word "tight" in its policy stance during the meeting to discuss future policy moves - another sign that an immediate rise of interest rate is not likely.

China's central bank has raised the reserve requirement ratio to a record high of 17.5 percent so far this year but did not add to the interest rate in the first seven months.

(Shanghai Daily August 2, 2008)

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