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Need for monetary policy study

CHINA is likely to start studying when to shift its monetary policy from relatively easing now to neutral or even tight for future policy planning, economists said yesterday as they interpreted the State Council's latest stance on the country's economy.

Lu Zhengwei, an Industrial Bank's senior economist, said China will stick to its relatively easing monetary policy for now to ensure a sustainable recovery in the economy.

However, a study on a neutral or even tight monetary policy is needed to help in policy planning once the economy bottoms out and embarks on a stable recovery, he said.

Premier Wen Jiabao told an executive meeting of the State Council, China's Cabinet, on Wednesday that the economy started to show positive changes, with favorable factors rising and the overall situation was moving upwards.

"The State Council's tone on the economy is more optimistic than before," Lu said. "The tone implies that the worst time may be over."

During the meeting, Wen repeatedly stressed that the economy remains at an uncertain stage and the authorities will retain its moderately loose monetary policy stance.

Ken Peng, a Citi economist, believed this means that there would be no additional controls on credit or other types of tightening in the near term from the central government.

"But it is not a promise of further stimulus," Peng said. "We expect authorities to shift their monetary policy tone to a more neutral stance before the end of the year, perhaps when the year-on-year inflation rate starts to rise in September and October."

China's Consumer Price Index fell 1.4 percent from a year ago last month - the fourth straight year-on-year monthly decline. However, its CPI rose every month between February and May on a seasonally adjusted basis, totaling an annualized 2.3 percent, Peng said.

"If inflation trends stay stable, we believe that the central bank may start to raise interest rates in the second half of next year," Peng said yesterday.




 

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