Mon­e­tary poli­cies likely to tighten to fight eco­nomic risks

China Daily (Hong Kong) - - FRONT PAGE - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

Mon­e­tary poli­cies are ex­pected to be­come rel­a­tively tight in the sec­ond half of this year, as fend­ing off fi­nan­cial risks has be­come a greater chal­lenge than sta­bi­liz­ing growth, said econ­o­mists and an­a­lysts.

They spoke ahead of the re­lease of sec­ond-quar­ter macroe­co­nomic data, sched­uled for Mon­day.

The change may mean less mon­e­tary liq­uid­ity in the mar­ket, as the gov­ern­ment strength­ens mea­sures to tackle risks.

Econ­o­mists said the ev­i­dence of the cen­tral bank’s switch of fo­cus in its mon­e­tary pol­icy is found in a quick re­view of the 2017 fi­nan­cial sta­bil­ity re­port, re­leased on July 4.

It shows that al­though the Peo­ple’s Bank of China, the cen­tral bank, used the ex­act same word­ing de­scrib­ing its mon­e­tary pol­icy stance — “pru­dent and neu­tral” — there was a change. It said it would keep liq­uid­ity and credit growth “at a ba­si­cally rea­son­able level” this year. This was a change from last year, when it said it would keep liq­uid­ity and credit growth “am­ple and at a rea­son­able level”.

That mi­nor dif­fer­ence in word­ing in the midyear re­port put a greater pri­or­ity on pre­ven­tion of cross-sec­tor fi­nan­cial risks, econ­o­mists said.

“The cen­tral bank’s ex­pected fine-tun­ing of its mon­e­tary pol­icy in the sec­ond half will de­pend less on changes in fun­da­men­tals, re­flected by such in­di­ca­tors as CPI and em­ploy­ment. It has shifted its fo­cus to adop­tion of mon­e­tary tools to tackle risk chal­lenges,” said Su Jian, an econ­o­mist at the Eco­nomic Re­search In­sti­tute of Pek­ing Uni­ver­sity.

Su said how China man­ages risks will hinge on how fi­nan­cial pol­i­cy­mak­ers co­or­di­nate their roles dur­ing the up­com­ing Cen­tral Fi­nan­cial Work Con­fer­ence, which is ex­pected to open on Fri­day and in­volve dis­cus­sions of the in­te­gra­tion of fi­nan­cial reg­u­la­tory bod­ies’ roles.

Sta­ble growth in the first half means the cen­tral bank does not need to con­tinue to is­sue ex­ces­sive credit to spur growth, Su said.

China’s year-on-year GDP growth reached a high­erthan-ex­pected 6.9 per­cent in the first quar­ter and is widely ex­pected to be 6.8 per­cent for the sec­ond quar­ter be­fore eas­ing mildly in the com­ing quar­ters.

“Even if t he econ­omy slows a bit in the sec­ond

half, it is al­most a cer­tain thing that China will achieve it­san­nual tar­get of 6.5 per­cent ,” he said.

Deng Haiqing, chief econ­o­mist at Ji­uzhou Se­cu­ri­ties, said in a re­search note on Mon­day that eco­nomic fun­da­men­tals are no longer a ma­jor con­cern for pol­i­cy­mak­ers im­ple­ment­ing mon­e­tary pol­icy in the sec­ond half.

He said he ex­pected con­sumer prices to grow by 2 per­cent this year, fall­ing well within the coun­try’s tar­get of stay­ing be­low 3 per­cent.

China’s June con­sumer price in­dex rose by 1.5 per­cent year- on- year, in line with mar­ket ex­pec­ta­tions, the Na­tional Sta­tis­tics Bureau said on Mon­day. The pro­ducer price in­dex, which gauges fac­tory- gate prices, rose by 5.5 per­cent in June from a year ear­lier.

With lit­tle con­cern about spurring growth, the macroe­co­nomic en­vi­ron­ment is not likely to loosen in the sec­ond half of this year, so that the coun­try can press ahead with­its ef­fort­sto fend off fi­nan­cial­risks and re­duce lever­age lev­els, re­search in­sti­tu­tions said.

China In­ter­na­tional Cap­i­tal Cor­po­ra­tion pre­dicted M2, a broad mea­sure of money sup­ply, is ex­pected to grow by only about 9.6 per­cent in June yearon- year, the same as May. That level is sig­nif­i­cantly lower than those seen in re­cent years, which of­ten reached 13 per­cent, arous­ing con­cerns from the fi­nan­cial mar­kets.

China is eye­ing 12 per­cent year- on- year M2 growth for this year.

The cen­tral bank said ear­lier that the de­cline of M2 growth “may be­come a new nor­mal” for the fu­ture.

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