It is generally believed that the three-year bills issuance by PBC is mainly attributable to strong economic indicators in the first quarter. Statistics show that China’s Purchasing Managers’ Index (PMI) for manufacturing sectors reached 55.1% in March 2010, the 13th straight month the index has been above 50% and 3.1 percentage points higher than in February, indicating rapid growth in manufacturing industries and strong momentum of economic recovery. Accelerated industrial production may probably result in GDP growth in the first quarter over 11%, which in turn leads to growing pressure for inflation.

For Consumer Price Index (CPI), the figure in March is estimated to be close to the 2.7% in February. A National Bureau of Statistics spokesman said in last month that CPI in March may be lower than 2.7% in February due to declining food price after Spring Festival. However, severe drought in South Western China brought into questions the stability of grain prices. In addition, imported commodity prices have been on strong increasing trend, and create growing pressure for domestic manufacturers due to China’s heavy reliance on imported commodities. Under normal circumstances, the increasing trend of Producer Price Index (PPI) is not likely to reverse in the near term, and, retrospectively, PPI had a significant impact on CPI.

Li Daokui, a PBC Monetary Policy Committee member, said that inflation level is the most important determinant for interest rate hike in China, and CPI over 3% for several months may result in interest rate hike; PBC may raise interest rate in the second quarter and the timing will not be affected by monetary policy in the US; that interest rate rise in China before the US may result in inflows of hot money is not the primary concern, since economic overheating in China is determined more by credit amount than hot money.