RPT-W.Bank sees higher China inflation, growth uptick

BEIJING, June 19 (Reuters) -The World Bank sharply raised its forecast on Thursday for China's inflation, saying it expects consumer prices to rise 7.0 percent this year, up from 4.6 percent projected in February.

The bank also nudged up its projection for gross domestic product growth in 2008 to 9.8 percent from 9.6 percent, because new data revealed a stronger service sector adding to the already robust economy.

In a quarterly economic update, the bank's Beijing economists said inflationary pressures required China to maintain a relatively tight monetary policy, relying instead on higher spending to cushion the global slowdown if it turns more serious.

"A fiscal easing would be better suited than a monetary loosening, given the need to contain inflationary expectations, rebalance the growth pattern and lower the current account surplus," the report said.

The bank also noted an apparent rise in speculative inflows chasing a higher yuan, suggesting that Beijing could tighten capital controls while mulling greater exchange rate flexibility and even a one-off appreciation.

"So far, China's policy makers have been able to deal with the inflows," senior economist Louis Kuijs told a news conference. "From a medium-term perspective, there is probably a need in China for an adjustment to the exchange rate regime." (Reporting by Simon Rabinovitch; Editing by Nick Macfie)