<div><p>SHANGHAI (Reuters) - China might increase interest rates once consumer inflation exceeds the one-year benchmark deposit rate of 2.25 percent, a prominent government adviser said on Monday.</p><p>Policymakers have traditionally been nervous whenever inflation-adjusted bank deposit rates turn negative in case savers pull their money out of the bank and put it into assets such as property and shares.</p><p>Ba Shusong, a senior research fellow at the Development Research Center, a think-tank under China's cabinet, said Beijing could raise interest rates ahead of the U.S. Federal Reserve to dampen inflationary expectations at home.</p><p>"But it still not known whether China will just raise deposit rates or both deposit and lending interest rates," Ba told Reuters in an interview.</p><p>The one-year lending rate stands at 5.31 percent. The People's Bank of China controls both the deposit and the lending rate.</p><p>Many economists have argued that Beijing would not raise interest rates before the Fed because a premium in China's favor could result in stronger capital inflows.</p><p>But Ba said capital inflows may not be as great as expected if higher borrowing costs cooled the property sector.</p><p>China's consumer price index rose 1.9 percent in the year to December. Economists expect inflation to accelerate further in coming months, but Jiao Jinpu, a researcher with the People's Bank of China, said price pressures were unlikely to be fierce enough to trigger a rate rise in the first quarter.</p><p>Turning to the yuan, Ba said there is a heated debate among researchers on whether China should let the currency rise. Beijing is likely to take a cautious approach to exchange rate policy, especially as the export sector is still weak, he added.</p><p>(Reporting by Victoria Bi and Alan Wheatley; Editing by Jacqueline Wong)</p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=68222943&bid=informcom" /></div><div id="copyright"><div>

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