China inflation rate dips to 1.9% raising easing hopes

China's central bank does not want to "be seen to be responsible for fuelling another bubble".

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China's policymakers have been given more room to boost stimulus measures after the country's inflation rate dipped in September.

Consumer prices rose 1.9% from a year earlier. That was down from a rate of 2% in August.

There have been calls for Beijing to ease its monetary policy to boost domestic demand and spur growth amid a global economic slowdown.

China's economic growth slowed to a three-year low in the second quarter.

"The weaker growth... was sort of inevitable at some stage," Jim O'Neill, chairman of Goldman Sachs Asset Management told the BBC.

"Part of the dilemma many observers face is to get used to the idea that China won't grow at 10% for the next decade as it's done for the last three decades, but it's still going to grow very strongly and it is still the most important thing for us and everybody else in terms of our export potential."

Domestic boost

China's economy has been hurt by falling demand for its exports and a slowdown in investment in the country.

Demand for its exports has been hit by continuing economic problems in key markets such as the US and Europe.

Start Quote

We think it's necessary to cut interest rates and reserve ratio requirement in [the] fourth quarter to ensure sound economic growth in 2013”

End Quote Wang Jun China Centre for International Educational Exchanges

Despite the fact that exports rose by 9.9% in September from a year earlier, which was more than had been expected, the export sector's growth continues to remain under pressure.

As a result, China has been keen to boost its domestic consumption in a bid to rebalance its economy and sustain growth.

"This inflation picture remains supportive for further policy easing to support the growth recovery which is still the top priority for now," said Sun Junwie, an economist with HSBC in Beijing.

It has already lowered the reserve ratio requirement, the amount of money banks must keep in their reserves, three times in the past few months, in an attempt to boost lending and spur demand.

It has also cut interest rates twice since June this year, to bring down the cost of borrowing for consumers and businesses.

On the investment front, Beijing has approved infrastructure projects worth more than $150bn (£94bn) to try to spur a fresh wave of economic development.

Analysts said policymakers would have to introduce further measures in order to sustain long term growth.

"We think it's necessary to cut interest rates and reserve ratio requirement in [the] fourth quarter to ensure sound economic growth in 2013," said Wang Jun, an economist with the China Centre for International Educational Exchanges in Beijing.

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