China Interest-Rate Speculation Splits Analysts, Former PBOC Official Wu

China can’t raise interest rates because of the risk of attracting inflows of cash that would fuel inflation, said Wu Xiaoling, a former deputy governor of the central bank.

“The global low interest-rate environment prevents China’s central bank from raising interest rates,” Wu said in a speech at a hedge fund conference in Shanghai today. Emerging markets face capital inflows and “excessive money supply is one of the important reasons for China’s inflation,” she added.

Economists at firms including Australia and New Zealand Banking Group Ltd. and UBS AG. have, in contrast with Wu’s view, said that China is likely to raise rates this weekend. China’s central bank yesterday increased lenders’ reserve requirements for the sixth time this year as part of efforts to curb inflation that rose to a 28-month high in November.

In October, the central bank pushed up lending and deposit rates for the first time since 2007.

Analysts have focused on the possibility of another increase this weekend because of today’s release of November data. Consumer prices rose 5.1 percent from a year earlier and producer prices jumped 6.1 percent, a statistics bureau report showed.

Wu, the deputy director of the Financial and Economic Affairs Committee of the National People’s Congress, said M2, the broadest measure of money supply, may rise 19 percent this year.

--Zhang Shidong. Editors: Paul Panckhurst, John Liu.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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