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Soft China inflation data released at theweekend has sparked speculation the economic giant may join the ranks ofvarious central banks in cutting interest rates to boost growth.
Figures from the National Bureau ofStatistics released on Sunday showed under-target consumer inflation, with theconsumer price index (CPI) rising 1.9 percent in June from a year ago primarilydue to lower food prices. Economists had forecast a 1.8 percent rise, after thecountry logged a 2.0 percent increase in May.
With the CPI under the official 3 percentinflation target, thePeople's Bank of China (PBOC) will have "more leewayto stimulate the economy" to help it achieve its 6.5 percent growth target,said Hao Zhou, Commerzbank's senior emerging market economist for Asia.
"It makes more sense for China to cutinterest rates," Zhou told CNBC's "Squawk Box" on Monday.
"China is talking about supply-sidereforms but I think China needs to stimulate on the demand side," headded.
Nomura's chief economists said, meanwhile,that although the CPI may spike temporarily in the months ahead due to heavyflooding in South China that would increase food costs, monetary policy waslikely to remain accommodative.
"Such a spike should be short-lived.The temporary spike in CPI and PPI (Producer Price Index) is unlikely to pose ameaningful constraint on monetary policy easing, as we expect the PBOC to seethrough the temporary supply shocks and maintain an accommodative policy stanceto curb downward pressure on growth," they said in a note on Sunday.
The house expects three more cuts to thebank reserve requirement ratio (RRR) - the amount of captial banks are requiredto hold - and one interest rate cut in the second half of 2016.
The PBOC last cut interest rates on Oct.23, for the seventh time since late 2014. The RRR was last cut in February, thefifth time in 12 months.
China's leaders have set an economic growthtarget of 6.5 percent to 7 percent for 2016, after the economy expanded 6.9percent last year, its slowest pace in a quarter of a century.
The world's second-largest economy is setto release its second-quarter GDP data on July 15.
- Reuters contributed to this report
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