The macroeconomic research team at Guotai Junan Securities Co Ltd has forecast that with deflationary expectations gathering strength, the People's Bank of China will cut interest rates in the fourth quarter and lower banks' required reserve ratio in the next two quarters.

Many economists disagreed, however, arguing that the central bank should weigh the potential risk of looser monetary policy.

"The latest rhetoric of the central bank and the central government shows that they are still cautious about an 'across-the-board easing' approach. The main adjustment would be 'targeted easing toward selected sectors', as they have been doing throughout this year," said Tang Jianwei, a senior economist with Bank of Communications Co Ltd.

Zhou said that unless fourth-quarter GDP growth slows to less than 7 percent, an across-the-board easing will not happen.

He added that 7 percent "is a psychological line for policymakers and the market".

Tang said that conditions during the fourth quarter will show an improvement.

Trade data for September released earlier this week showed exports expanded more than estimated and imports unexpectedly rebounded. Imports grew 7 percent year-on-year, suggesting strong domestic demand, which is seemingly at odds with the CPI.

"Strong exports helped lift imports. The (import) number does not indicate underlying demand. As the six-year low industrial output growth in August suggested, domestic demand remains quite weak," Tang said.

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