FACING inflation caused by increasing costs and rising demand, China is likely to raise its interest rates once or twice in the first half, a Bank of China report forecasts.
The BOC report predicted the consumer price index in February to hit 8.3 percent. It ranked inflation as the top threat to China's economy, which it said already had the preconditions of a demand-driven inflation.
If prices remained high for a long period, people would expect further rises and hoard commodity products, further pushing up prices, it said.
Xie Fuzhan, head of the National Bureau of Statistics, acknowledged that the CPI would climb even higher in February because of the severe winter weather that damaged crops, cut power supplies and disrupted traffic in eastern and southern China.
Fastest pace
The CPI reached 7.1 percent in January, its fastest pace in more than 11 years, according to official figures.
Xie, who is also a member of the central bank monetary policy committee, said discussions have not started on whether to raise interest rates in the near future, but the tight monetary policy would not change.
The report noted the unconventional increase in foreign direct investment in January, saying it signaled more capital inflows into China in anticipation of faster appreciation of the yuan. It advised the central bank to expand exchange elasticity.
The report also predicted that the Chinese currency would appreciate faster against the US dollar in the first half, but would gradually slow down after that.