The State Information Center (SIC), a leading economic think tank, has said interest rate hikes aren't the proper way to address rising inflation because higher rates could have a negative impact on the stock market.

The agency's comments, contained in a report, were publicized on Thursday in an article in the China Securities Journal.

The negative impact of recent severe winter weather would continue to push up consumer prices in the first quarter, but the impact would pass, the report said.

The research center lifted its forecast for the consumer price index (CPI) to 6.9 percent from 6.6 percent in the first quarter.

The CPI, it said, is a lagging indicator and largely reflects recent years' overheated economic growth. The SIC called on the government to further raise the reserve ratio requirement for commercial banks to rein in lending.

Chinese share prices have been volatile and mostly lower lately, with the key Shanghai index falling almost one-third from its peak of more than 6,000 in mid-October to 4,192.53 on Monday, the lowest close in seven months.

China should continue its tighter monetary policy to prevent surging fixed investment, said the SIC. It noted that 2008 was the first year in office for many local government officials, who would have "strong investment impulses" as they sought to show tangible results.

It also said the government should maintain prudent fiscal policy and channel more funds toward the rebuilding of snow-stricken provinces. The SIC predicted that first-quarter gross domestic product growth could drop to 10.5 percent from 11.2 percent in the fourth quarter.

(Xinhua News Agency February 28, 2008)