Merrill Lynch Released Its Expectations For China Interest Rate May Increase

The Bank of America Merrill Lynch released its expectations for Chinese interest rate according to a report today released, which showed that the interest rate forecasts for the fourth quarter of the year will increase.

The Chinese economy rose to 11.9% in the first quarter of 2010, and the higher growth was supported by the stimulus plans executed by the Chinese government which supported domestic demand.

Accelerating growth is supported by the stimulus plans executed by the Chinese government, which supported domestic demand. On the other hand, rebounding global demand also lifted demand for Chinese exports. The Yuan's depreciation due to cut of the Yuan's correlation to dollar, also makes Chinese export more competitive in global markets.

Moreover, Chinese government pumped 4 trillion Yuan into its financial cycle in 2008 amid the European governmental debt crisis; in order support the weaker exports in the world's third largest economy.

The expectations of Merrill Lynch are indicating that the People's Bank of China will increase the interest rate during the second quarter of next year, in order to encourage loans to increase the spending that noticeably supported the nation's growth last year.

Despite inflation in China exceeding the comfort zone determined by the Chinese government during this year at 3%, after the government supported the nation's recovery by stimulus plans and lending offers.

The expectations are still warning about China's inflation risks, due to Chinese growth acceleration that officials fear might trigger an asset bubble, which may threaten the Chinese economy, but the anticipations of the Merrill Lynch cut its forecasts for inflation rate in China in 2010 to 2.9% from 3.4%.

The Chinese prime minster indicated at the beginning of the week, pledged to maintain the current economic polices to ensure favorable conditions for businesses.