China is likely to raise interest rates within the next 10 days as price pressures encourage the government to end the longest pause since increases began in October, Nomura Holdings Inc. says.
The world’s second-biggest economy is maintaining momentum and “inflation is still high,” Nomura economist Sun Chi said in a phone interview from Hong Kong today. Sun reaffirmed a forecast for an increase by the end of June.
China’s benchmark stock index slid to the lowest in almost nine months today on concern that monetary tightening to tame inflation will erode company profits and trigger an economic slowdown. Policy makers may be assessing the threats to export demand from weakness in the U.S. economy and a possible Greek default on debt.
The Shanghai Composite Index fell 0.9 percent as of the 11:30 a.m. local time break in trading.
China’s government has paused for more than 10 weeks after pushing the key one-year lending rate to 6.31 percent.
Sun said inflation may peak in July or August after accelerating to 5.5 percent in May, the fastest pace since 2008. A debate over the risks of tightening policy too much may have delayed a rate increase, she said.
Macquarie Securities Ltd. said today that China is likely to raise rates within the next four or five weeks.
Separately, state economist Ba Shusong called for the government to consider cutting reserve requirements for lenders. Such a move could be in tandem with raising rates to curb inflation expectations, Ba, a researcher at the State Council’s Development Research Center, wrote in the Hong Kong-based Ming Pao Daily today.
Lowering reserve requirements could help small and medium- sized businesses to get funding, he said.