Business

China inflation growth dims hopes of interest rate cut

Lady buying vegetables at a market
Image caption Consumer prices have been hurt by an increase in the cost of fuel

China's inflation rate grew more-than-forecast in March as higher fuel and food costs pushed up consumer prices.

Consumer prices grew by 3.6% in March from a year earlier, up from 3.2% in February. Analysts had forecast an increase of 3.3%.

Premier Wen Jiabao has cited inflation is one of China's main economic worries and has set a target of 4% for 2012.

Analysts said the data may prompt the central bank to hold back on monetary policy easing for now.

"I think the stronger-than-expected inflation could slow down the pace of monetary policy relaxing, although the basic direction of policy easing is intact," said Wang Jin of Guotai Securities in Shanghai.

Growth concerns

China's economy grew by 8.9% in the three months to the end of December from a year earlier, the slowest pace of growth in more than two years.

There have been concerns that its growth may slow even further amid a slowing demand for its exports from key markets such as the US and eurozone.

In a bid to sustain its pace of growth, China's central bank has been easing its monetary policy in recent months.

It has cut the amount of money banks must keep in reserve twice in the past few months, in a bid to boost lending and sustain economic growth.

There has been growing speculation that the central bank may cut the cost of borrowing in a further attempt to boost growth.

However, analysts said the higher-than-expected jump in consumer prices had reduced the chances of such move, not least because of fears that availability of easy money at low rates may push consumer prices higher.

"We maintain our forecast that the central bank may cut the reserve ratio several times this year, but the chance of cutting interest rates has become even lower," said Mr Wang.

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