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More easing in monetary policy seen

ECONOMISTS said China may loosen its monetary policy further to free up money to overcome the economic slowdown, and an expert at global banking giant HSBC called for unconventional measures.

Qu Hongbin, HSBC's chief economist in China, said such measures are needed during this unconventional period. He said the government should roll out more proactive fiscal measures and an easier monetary policy to buffer an economic "hard landing," or when an economy goes directly from a period of expansion to a recession.

Calyon, the corporate and investment banking arm of Credit Agricole, yesterday said Asia will be hit by shockwaves from the global credit crisis this year.

"The government support is the backbone to ride out the slowdown," said Qu who added it's a fairy tale to hope for private consumption to shore up the economy.

China's trade slump worsened last month as exports fell by 2.8 percent.

"The export data is the start of bad news," said Qu. "China's exports may face a double-digit drop in two to three years."

Qu argued that falling inflation allows for a maximum monetary easing, and he said he expects the one-year lending rate to drop to 3.42 percent this year from 5.31 percent now and to stay flat next year.

The People's Bank of China has cut interest rates five times and relaxed reserve requirements for major financial institutions three times since September when the monetary policy was eased. China's M2, the broadest measure of money supply, rose by a faster-than-expected 17.8 percent last month, the fastest growth in seven months.

"With a one-year lending rate of 5.31 percent and a reserve ratio of 15.5 percent for big banks, there is still room for monetary loosening," said Sherman Chan, a Moody's economist.


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