A report released by the International Financial Research Institute of the Bank of China predicted that China’s central bank will raise interest rates once or twice in the second quarter of 2011. The relatively higher price increases and the continuous negative interest rates are the direct reason of rate hikes.

The Bank of China has raised the base rate of RMB deposits and loans in financial institutions three times since October 2010. Bank of China’s research team pointed out that China’s prices are in the critical period of transforming from structural increases to overall increases.

The consumer price index (CPI) and producer price index (PPI), which had previously seen alternating and cyclical fluctuations, shifted toward a synchronous rise in the second half of 2010. This has increased the pressure on future price increases. Therefore, China’s monetary policy will return to being stable.

In addition to rate hikes, the report predicts that the deposit reserve ratio may also be adjusted in the first half of 2011 to inhibit excessive commercial bank loans and manage excess liquidity in the market. However, as the deposit reserve rate has reached 20 percent, a record high, the increase space is relatively limited.

&$&$By Li Yancheng, People’s Daily Online&$&$