Economists expect tight monetary policy to continue

AN expected slow-down in March inflation is unlikely to lead authorities to relax tight monetary measures, economists said.

Deutsche Bank's Chief Economist in China Ma Jun said he expected March inflation to slow to about 8.2 percent from February's 11-year high of 8.7 percent, but the one-month moderation should not be interpreted as the end of the inflation problem.

A March inflation slow-down is widely expected by other economists.

A Citigroup forecast predicted 8.3 percent growth in inflation while Goldman Sachs put the figure at 8.4 percent.

The National Statistics Bureau is scheduled to post the March consumer price index, the main inflation gauge, tomorrow morning.

Liu Shiyu, the deputy governor of the People's Bank of China, said on Saturday in Shanghai that the March inflation is estimated to fall to 8.3 percent in March for "seasonal reasons," contributing to first quarter inflation of 8.0 percent.

The March deceleration reflects largely the recovery of vegetable production after winter storms, improvement in transport and modestly better supplies for meat products, Ma said.

However, the recent National Development and Reform Commission approvals for increases in milk and edible oil prices, and restaurant food prices, will begin to affect the food index, which is measured in the CPI, Ma said in a research note.

The pass-through of raw material price inflation to manufacturing consumer products is likely to become more visible in coming months as a growing number of manufacturing sectors are facing margin pressure.

``These reasons suggest that one cannot rule out the possibility of the CPI rising again in April or May, after the March drop,'' Ma said. ``These uncertainties imply that a relaxation of monetary policy is unlikely in the near term.''

Stephen Green, head of research China of Standard Chartered, said, ``If the March CPI is 8.3 percent, as now widely rumored, the central bank will come under a lot more pressure to relax the quota and local banks will come under pressure to boost lending from local officials who bet the inflation fight is over. So a resurgence in credit growth is possible in the second or third quota.''

The central bank is very likely to increase the reserve requirement this month to curb a possible resurgence of credit before a sharp drop in inflation, said Zhang Yan, from Datong Securities.

The central bank has raised the reserve requirement for banks to an all-time high of 15.5 percent. It prevents banks from excessive lending.

By Zhang Fengming