Inflation still hanging over China

China's central bank, battling rising inflation in May, may raise interest rates banks must pay on deposits and also their reserve requirements, analysts said. The rate changes, part of an effort to soak up excess liquidity in the economy, could be announced by the People's Bank of China before the government releases new inflation numbers this week, China Daily reported Monday. The report said the government expects the consumer price index, the main indicator of inflation, to hit a record high in May, up from April's record high of 5.3 percent. Some analysts said the May CPI could rise to 5.5 percent. "The central government should and probably will curb this continuously rising inflation by raising interest rates," Professor Li Daokui at Tsinghua University told China Daily. China's rising inflation has become a major concern for the government as current rates far exceed the government's target of 4 percent or less for the year. Industrial Bank senior economic Lu Zhengwei said he expects the one-year benchmark interest rate on deposits to go up to between 3.75 percent and 4 percent from the current 3.25 percent. He said he also expects the government to raise the reserve requirement ratio for banks. "China's monetary policy in the short-term won't be loose," another analyst said, adding the central "will continue to tighten it until at least the end of the third quarter." Any raise in interest rates would be the third such this year. There are also concerns China could experience stagflation, which triggers both high inflation and economic stagnation or slowdown.