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Hard to Predict Rate Boost Chances, Bank of China’s Li Says

March 10 (Bloomberg) -- China’s inflation may remain under control this year, making it difficult to predict whether the central bank will need to increase interest rates, Bank of China Ltd. President Li Lihui said.

The world’s second-largest economy is in “steady mode” and is rebounding, Li said in an interview in Beijing, where he’s attending the annual session of the National People’s Congress, the country’s legislature.

Retail sales and industrial output had their weakest combined start to a year since the global recession in 2009, data published yesterday showed, adding to signs of a moderating rebound. A separate report showed inflation, distorted by a week-long holiday, was the fastest in 10 months in February. The government is targeting economic growth of 7.5 percent, the same goal as last year, when actual expansion slowed to 7.8 percent, the lowest since 1999.

“CPI will still be controlled relatively well this year,” Li said. “Our projection is that it can be controlled at around 3 percent. Under this scenario, it’s hard to say at this point whether the central bank will need to raise interest rates.”

Loan growth in the country may be similar to last year, Li said, even as Chinese companies reduce dependence on financing from bank loans by turning to bond sales and other methods of raising funding. Larger banks will have an advantage as the process opens up new lines of business, he said.

“We can provide capital market services to our customers, helping them to raise funds on the capital markets, such as selling bonds, short-term notes or shares” he said. “Financial disintermediation will prompt banks to transform their businesses and innovate.”

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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