Inflation growth in January may be trimmed to below the one-year deposit rate, turning the current negative real interest rate into the positive territory, chief economist with Bank of Communications Lian Ping said today.

The bank predicted that the consumer price index (CPI) in China will grow 3.2 percent in Feb., compared with a 4.1 percent increase in the previous month, according to a report released by the BoC.

China has its one-year deposit at 3.5 percent now, and has kept the real interest rate in the negative terrain for 24 straight months.

Farm prices monitored by the commerce department fell by 0.2 percent last week, nearing the end in the recent decline after the New Year holiday which fell on late January.

Overall food prices in the month have been also kept falling, but at a slower pace at 0.8 percent to 1.2 percent, data from the commerce department shows.

Therefore, "Feb.'s CPI growth is projected at 3-3.4 percent" and taking the median, BoC's forecast is around 3.2 percent, said Lian Ping in the report.

Lian added that the year-on-year decline in the inflation gauge may continue through the third quarter this year, and in the fourth quarter rebound slightly.

Uncertainties, particularly the volatile crude market due to turmoil in Iran, may cause strains on domestic prices by importing inflation, Lian warned.

Regarding policies, this year will see further cuts in the deposit reserve ratios, each by 0.5 percentage points, as a declining CPI and the end of negative interest rate make room for further monetary operations, Lian said.

Source:caijing