China Has Room to Raise Rates, Governor Zhou Says

China's central bank Governor Zhou Xiaochuan said there's room to raise interest rates as the government tries to tame the fastest inflation in 11 years.

``There is still room for further interest-rate increases,'' Zhou said in Beijing today. ``U.S. rate cuts recently have made our rate decisions more difficult.''

China is trying to rein in prices without choking off growth in the world's fourth-biggest economy. Zhou and other senior officials briefed reporters amid economists' skepticism that the government's goal of capping inflation at 4.8 percent this year is realistic.

``We believe that the government is still underestimating the risk of inflation,'' said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. ``Our current forecast of CPI inflation is 6.4 percent for this year.''

China raised rates six times last year, pushing the key lending and deposit rates to nine-year highs of 7.47 percent and 4.14 percent. Federal Reserve cuts to borrowing costs may increase the flow of money into China from investors seeking bigger returns just when Zhou is trying to rein in the money supply.

The inflation rate surged to 7.1 percent in January on food and fuel costs.