Zhou Xiaochuan, governor of the People's Bank of China (PBOC), the central bank said that China will face pressure to cut interest rates until the beginning of next year.

Last month (PBOC cut the benchmark one-year lending rate to 5.58 per cent from 6.66 per cent and the one-year deposit rate to 2.52 per cent from 3.60 per cent. These cuts, of 108 basis points each, were the largest since the Asia crisis of the late '90s.

At the Financial Stability Forum meeting he said, that from now until the beginning of next year would be full of interest rate cut pressure.

According to Zhou, the deepness of the interest rate cuts will depend on "our estimates and the actual statistics of consumer price index (CPI) to make the final rate cut decisions.

He added that the CPI was going down "faster than we think".

Rises in the consumer price index (CPI) slowed for seven straight months because of the sharp fall in commodity prices on the world market and sluggish global demand amid the financial crisis.

China's annual inflation gauge fell to a 22-month low of 2.4 per cent in November, which gives the central bank scope to cut interest rates further, according to some analyst.

The figure, compared with 4 per cent in October, 4.6 per cent in September, 4.9 per cent in August and a nearly 12-year-high of 8.7 per cent in February, was broadly in line with most forecasts.

Food prices, accounting for over a third of the CPI calculation, have been the main driver behind rising inflation since last year, and was 5.9 per cent in November 2008, down from 8.5 per cent in October and 9.7 per cent in September.

As the inflation growth deceleration gained momentum, Zuo said concern over deflation were reasonable and therefore, the economy required to be stimulated. "If the macroeconomic policies push forward economic growth successfully, deflation would not inflict pains on the economy in a significant way. Without proper policy support, deflation would be highly possible," she said.
 
In September amidst the global financial chaos the central bank took measures to reduce the one-year lending rate from 7.47 per cent to 5.58 per cent.

Analyst are expecting that the rate will be further trimmed considerably in the second quarter of 2009.

China's economy slowed sharply in the third quarter because of slowing export and investment growth. Imports are also falling, sending the trade surplus to a record high.

Zhou pointed out that the exchange rate depreciation may not be able to boost export growth; it is basically determined by supply and demand and the trade balance, he added.

The gross domestic product grew at an annualized rate of 9 percent in the third quarter, down from 10.1 percent in the second quarter and 10.6 percent in the first quarter.

Last month Chinese govt announced a stimulus package estimated at 4 trillion yuan ($586 billion), to be spent over the next two years.

The Chinese government has churned out a series of aggressive measures to stimulate its economy and probably the interest rate cut may be another factor the govt will have to ponder on.