Analysts at HSBC believe that China will raise interest rates for the first time this year before Lunar New Year, in other words, within January. The specialists note that as the released today data showed that Chinese economic growth turned out to be higher than expected the country’s authorities can now focus on stemming inflation.

China’s GDP gained 9.8% in the final quarter of 2010 compared with the previous year’s level, while the economists were looking forward only to 9.4% advance. The country’s CPI rose by 4.6% in December on the annual basis after it had added 5.1% in November.

The strategists regard the easing of inflationary pressure as temporary and think that inflation’s likely to rebound in the coming months due to seasonally buoyant demand around the Lunar New Year, with a shortage of food supply due to a cold winter, excessive credit growth and rising global commodity prices.

According to HSBC, China will increase banks' reserve requirement ratio by 150 basis points and make two 25bp rate hikes in the next 6 months.

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