China's inflation likely to drop to 4 pct by yearend: report

By Kim Young-gyo HONG KONG, July 22 (Yonhap) -- China's consumer inflation will likely cool down to 4 percent by the end of the year as the country's tightening moves have taken effect, a report said Friday. China's consumer prices rose 6.4 percent in June from a year earlier, hitting a 35-month high. They grew more than 5 percent for the fourth straight month, and the growth exceeded 6 percent for the first time since July 2008. The Bank of Communications, a major commercial bank in China, said in the report that consumer price growth is expected to slow down in the second half on a combination of tighter liquidity, slower economic growth, lower international commodity prices and adequate grain supplies. It expected China's consumer price index (CPI) will be contained at around 5.2 percent for full 2011. The CPI growth may ease to 3 percent in the middle of next year if no sudden factors emerge both at home and abroad, the report added. Lian Ping, the bank's chief economist, said China still faces imported inflation as crude oil prices will probably stay high and long-term pressure of price increases due to higher labor costs and material costs will likely persist. He predicted the Chinese authorities will continue a tightening monetary policy by lifting banks' reserve requirement ratio once or twice more this year by 0.5 percentage points each time. The economist added further interest rates hikes are not likely, as the country will put its focus more on controlling the volume of credit. In a bid to curb inflation, the central People's Bank of China has raised the benchmark interest rate three times this year while increasing the amount of money banks must keep in reserves six times in 2011. The Bank of Communications forecast the country's economy will grow by around 9.5 percent for the year with little risk of a hard landing. It was comparable to a 10.3 percent expansion in 2010. It also predicted the yuan will appreciate by 5 percent against the U.S. dollar this year. The Chinese currency set a new high on Friday for the third day in a row to a ratio of 6.4495 yuan per U.S. dollar, up 26 percent from 8.11 yuan on July 21, 2005, when China abandoned a decade-old peg against the greenback and shifted to a managed floating exchange rate system.