Rate may reach 5% — Credit Suisse

Shanghai: China's inflation rate may accelerate to more than five per cent by the end of the year, as government measures to cool lending will have little effect, said Tao Dong, chief Asia-Pacific economist at Credit Suisse AG.

"The reserve-ratio hike will have no real effect on draining liquidity, it's only a symbolic measure," Tao said at a conference yesterday.

There may be a "rush of interest-rate increases" at the end of the year, he said.

The central bank this month ordered lenders to set aside a larger proportion of deposits as reserves and has guided bill yields higher after 2010 began with a surge in lending. Inflation accelerated to a more-than-forecast 1.9 per cent in December and gross domestic product climbed 10.7 per cent, the fastest pace since 2007, the statistics bureau said on Thursday.

"I do agree interest rates are more likely to be raised later rather than sooner," said Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden Financial Ltd. "I think most authorities would continue to try to keep things going rather than to risk killing it off too early."

Since October, policy makers have said managing inflation expectations is one of the government's central objectives. The central bank will likely act sooner than previously anticipated to contain prices, a Bloomberg News survey of economists showed.