Slowing CPI growth may lead to rate cuts

China's Consumer Price Index (CPI) may increase 3.1 percent year-on-year, the Financial Research Center of Bank of Communications predicted, Jinghua Times reported on Friday. The growth in May would be slower compared with the previous month, as vegetable prices have decreased markedly, the report said.

The central bank may cut interest rates for the first time this year at the beginning of June, and the cut rates may be different for loans and deposits. The reduction in deposit interest rates will be inevitable, and the CPI is expected to stay at less than 3 percent year-on-year in the second half of 2012, China International Capital Co Ltd (CICC) estimated.

Another forecast from Shenyin & Wanguo Securities said that interest rates will be cut in the middle of June, and whether the rate cuts for deposit and loan will be the same depending on the economic condition and CPI. If economic growth continues to deteriorate, while the CPI remains high, non-symmetrical interest rate cuts may be adopted.