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Despite April's lower PMI, more tightening is expected
By Zhang Fengming |
May 3, 2011, Tuesday
|
Online Edition
Online Edition
ECONOMISTS said today they don't translate the moderating April Purchasing Managers Index into monetary easing and expect more tightening measures to come this month.
The manufacturing PMI reading eased to 52.9 in April, down from March's 53.4 and lower than the market expectation of 53.9.
"The April PMI figure indicated that China's economic activities continued to expand at a solid pace, although the expansion has started to moderate somewhat," said Liu Ligang, an ANZ economist. "Meanwhile, inflationary pressure has not abated."
"We therefore do not view the April PMI result as a sign that economic activities are decelerating, and expect to see further monetary tightening in the second quarter," Liu said.
Barclays Capital said in a research note yesterday that while the PMI suggested softening activity, pipeline price pressures remain elevated.
Lu Zhengwei, an Industrial Bank senior economist, said he expect China's inflation to continue to test new height as late as October before easing off and April's signs of moderating could well be short-lived.
"The above-target M2 will push the central bank to raise the reserve requirement ratio one more time by 0.5 percentage point in May to push the ratio to 21 percent for the country's biggest banks," Lu said. "The market should pay attention to the possible siphoning of liquidity."
M2, the broadest measure of money supply, rose a faster-than-expected 16.6 percent in March from a year earlier. The central bank targets a 16 percent M2 growth this year.
But he played down the possibility of an interest rate increase in May.
China has raised its interest rates four times, 25 basis points each time, since October to increase the cost of credit to ward off a liquidity-driven inflation.
China's benchmark one-year deposit rate sits at 3.25 percent now, while March inflation rose to a 32-month high of 5.4 percent.
China has raised the required reserve ratio 10 times since 2010 with four increases made this year.
People's Bank of China Governor Zhou Xiaochuan said on April 16 that there is no clear (upper) limit on the required reserve ratio while more aggressive interest rate hikes will lead to hot money inflows.
China is set to announce its April inflation on May 11, with April monetary data to be posted around the date.
The manufacturing PMI reading eased to 52.9 in April, down from March's 53.4 and lower than the market expectation of 53.9.
"The April PMI figure indicated that China's economic activities continued to expand at a solid pace, although the expansion has started to moderate somewhat," said Liu Ligang, an ANZ economist. "Meanwhile, inflationary pressure has not abated."
"We therefore do not view the April PMI result as a sign that economic activities are decelerating, and expect to see further monetary tightening in the second quarter," Liu said.
Barclays Capital said in a research note yesterday that while the PMI suggested softening activity, pipeline price pressures remain elevated.
Lu Zhengwei, an Industrial Bank senior economist, said he expect China's inflation to continue to test new height as late as October before easing off and April's signs of moderating could well be short-lived.
"The above-target M2 will push the central bank to raise the reserve requirement ratio one more time by 0.5 percentage point in May to push the ratio to 21 percent for the country's biggest banks," Lu said. "The market should pay attention to the possible siphoning of liquidity."
M2, the broadest measure of money supply, rose a faster-than-expected 16.6 percent in March from a year earlier. The central bank targets a 16 percent M2 growth this year.
But he played down the possibility of an interest rate increase in May.
China has raised its interest rates four times, 25 basis points each time, since October to increase the cost of credit to ward off a liquidity-driven inflation.
China's benchmark one-year deposit rate sits at 3.25 percent now, while March inflation rose to a 32-month high of 5.4 percent.
China has raised the required reserve ratio 10 times since 2010 with four increases made this year.
People's Bank of China Governor Zhou Xiaochuan said on April 16 that there is no clear (upper) limit on the required reserve ratio while more aggressive interest rate hikes will lead to hot money inflows.
China is set to announce its April inflation on May 11, with April monetary data to be posted around the date.
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