Beijing: China's central bank, People's Bank of China, may cut interest rates by 25 basis points each in the second and third quarter to revive the economic growth which is impacted by slowdown in eurozone and the US, a research note said here.
China's monetary policy is likely to see an adjustment in the first half of this year as inflation pressure gradually eases, a research paper, co-sponsored by Xiamen University and the National University of Singapore, said.
"We expect the People's Bank of China to cut the interest rate twice, in the second and third quarters, by 25 basis points each time," Professor of Economics at the Lee Kuan Yew School of Public Policy at the National University of Singapore Chen Kang said.
After those two cuts, China's benchmark interest rate will drop from the current 6.56 per cent to 6.06 per cent.
The central bank said on February 18 that it will cut the reserve requirement ratio, or the proportion of money that lenders must set aside as reserve, by 50 basis points, effective February 24.
It follows a cut in the reserve requirement ration in December by 50 basis points, the first since December 2008.
"As the external demand weakens, the renminbi further appreciates and the domestic economy slows down, we believe the inflation pressure will gradually ease this year,"
Professor Li Wenfu of Xiamen University told the state run China Daily.
According to the National Bureau of Statistics, the Consumer Price Index, a main gauge of inflation, stood at 4.5 per cent year-on-year in January. It rose 5.4 per cent in 2011 from a year earlier, the bureau said.
"Based on our research, China's CPI will fall to 3.33 per cent in 2012, down 2.18 percentage points from 2011, which provides leeway for the central bank to loosen its monetary policy as the economy further slows down," Li added.
Deputy Head of the Economic Research Institution of the Chinese Academy of Social Sciences Zhang Ping said the CPI will fall further in February, probably below 3.5 per cent.
"With a meaningful rebound for domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth," Chief Economist for China and the Co-Head of Asian Economic Research at HSBC Qu Hongbin said.
He urged the central bank to further loosen its policies after it cut the RRR for banks for the first time this year.
Due to last year's surging inflation, China's real interest rates have been negative for the past 23 months.

China's CPI reached a 37-month high of 6.5 per cent in July 2011.
"Given China's negative real interest rate, there should be a cut in the loan interest rate but no more in the deposit interest rate," Economist with the Unirule Institute of economics Zhang Shuguang said.