PBOC may be cautious of reducing interest rate
Source: Agencies |
June 20, 2012, Wednesday
|
Print Edition
Print Edition
CHINA'S central bank could rely on cutting the amount of cash the banks must hold as reserves to bolster growth but reserve further interest rate cuts as the last-resort policy option, economists familiar with the country's policy-making process said.
Fresh policy support may be needed as growth may not bottom out in the second quarter, or the pace of recovery could be sluggish, they said, citing continued weak global demand.
The People's Bank of China cut benchmark rates on June 7 for the first time since the 2008-2009 global crisis, following three cuts in banks' reserve requirement ratio since November.
The timing surprised investors, who feared it could signal the world's second-largest economy was headed for a hard landing. But while later economic data for May did confirm growth was cooling, it gave no indications of a precipitous decline.
Cautious rate cuts
"The central bank could cut RRR further, but it could be very cautious in cutting interest rates, unless the economy continues to slow at a pace faster than expected," said Wang Jun, senior economist at the China Centre for International Economic Exchanges, a Beijing-based think-tank.
"Policymakers have realized that it's impossible to loosen policy aggressively as that could be costly. Property prices are one of the top concerns for them," he said yesterday.
While Chinese banks' lending picked up in May from April, analysts worry that many of the new loans may be related to the government's fast-tracking of infrastructure projects, as opposed to reflecting a pick-up in broader economic activity.
China has made clear that it will not repeat another massive fiscal stimulus similar to the 4 trillion yuan (US$629 billion) spending package launched in late 2008, which bolstered growth but left an unwelcome legacy of strong inflationary pressures and a potential property bubble.
Subsidy scheme revived
Still, the government has introduced a host of more modest stimulus measures in recent months, such as resuming a "cash for clunkers" scheme to trade in old cars for new ones and offering consumers incentives to buying energy-saving home appliances.
China's annual economic growth is almost certain to dip below 8 percent in the second quarter - the sixth straight quarter of slowing expansion - although analysts are divided on whether it will bottom out in the period.
"I don't think growth will hit a bottom in the second quarter. Macro-economic policies should be loosened further as the slowdown could persist in the second half," said He Liping, dean of the finance department at Beijing Normal University.
"On monetary policy, the central bank will focus on quantitative tools. It has been cautious about cutting interest rates, which is a more powerful tool that affects firms' borrowing costs and residents' willingness to spend," he said.
Fresh policy support may be needed as growth may not bottom out in the second quarter, or the pace of recovery could be sluggish, they said, citing continued weak global demand.
The People's Bank of China cut benchmark rates on June 7 for the first time since the 2008-2009 global crisis, following three cuts in banks' reserve requirement ratio since November.
The timing surprised investors, who feared it could signal the world's second-largest economy was headed for a hard landing. But while later economic data for May did confirm growth was cooling, it gave no indications of a precipitous decline.
Cautious rate cuts
"The central bank could cut RRR further, but it could be very cautious in cutting interest rates, unless the economy continues to slow at a pace faster than expected," said Wang Jun, senior economist at the China Centre for International Economic Exchanges, a Beijing-based think-tank.
"Policymakers have realized that it's impossible to loosen policy aggressively as that could be costly. Property prices are one of the top concerns for them," he said yesterday.
While Chinese banks' lending picked up in May from April, analysts worry that many of the new loans may be related to the government's fast-tracking of infrastructure projects, as opposed to reflecting a pick-up in broader economic activity.
China has made clear that it will not repeat another massive fiscal stimulus similar to the 4 trillion yuan (US$629 billion) spending package launched in late 2008, which bolstered growth but left an unwelcome legacy of strong inflationary pressures and a potential property bubble.
Subsidy scheme revived
Still, the government has introduced a host of more modest stimulus measures in recent months, such as resuming a "cash for clunkers" scheme to trade in old cars for new ones and offering consumers incentives to buying energy-saving home appliances.
China's annual economic growth is almost certain to dip below 8 percent in the second quarter - the sixth straight quarter of slowing expansion - although analysts are divided on whether it will bottom out in the period.
"I don't think growth will hit a bottom in the second quarter. Macro-economic policies should be loosened further as the slowdown could persist in the second half," said He Liping, dean of the finance department at Beijing Normal University.
"On monetary policy, the central bank will focus on quantitative tools. It has been cautious about cutting interest rates, which is a more powerful tool that affects firms' borrowing costs and residents' willingness to spend," he said.
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