Tight monetary policy remains
By Zhang Fengming |
May 4, 2011, Wednesday
|
Print Edition
Print Edition
ECONOMISTS expect more tightening measures this month despite moderation in the April Purchasing Managers' Index.
The manufacturing PMI reading dipped to 52.9 last month, down from 53.4 in March and lower than the market's estimate of 53.9, according to the China Federation of Logistics and Purchasing.
"The April PMI figure indicated China's economic activities continued to expand at a solid pace, although the expansion has started to moderate somewhat," Liu Ligang, an ANZ economist, said yesterday. "Meanwhile, inflationary pressure has not abated.
"We therefore do not view April's PMI as a sign economic activities are decelerating, and expect to see further monetary tightening in the second quarter," Liu said.
Barclays Capital said in a research note that while the PMI suggested softening activity, pipeline price pressures remain high.
Lu Zhengwei, an Industrial Bank senior economist, said he expects inflation to continue to test new highs as late as October before dropping. Lu added April's signs of moderation 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 M2 growth of 16 percent this year.
But Lu said it's unlikely interest rates will be increased this month.
China has raised interest rates four times, 25 basis points each time, since October to increase the cost of credit to ward off liquidity driven inflation.
The benchmark one-year deposit rate is 3.25 percent. March inflation rose to a 32-month high of 5.4 percent.
The bank reserve requirement has been raised 10 times since 2010, with four increases coming this year.
People's Bank of China Governor Zhou Xiaochuan said on April 16 that there is not a clear upper limit on the required reserve ratio given ample domestic liquidity. He also said more aggressive interest rate hikes will lead to hot money inflows due to excess liquidity internationally.
The manufacturing PMI reading dipped to 52.9 last month, down from 53.4 in March and lower than the market's estimate of 53.9, according to the China Federation of Logistics and Purchasing.
"The April PMI figure indicated China's economic activities continued to expand at a solid pace, although the expansion has started to moderate somewhat," Liu Ligang, an ANZ economist, said yesterday. "Meanwhile, inflationary pressure has not abated.
"We therefore do not view April's PMI as a sign economic activities are decelerating, and expect to see further monetary tightening in the second quarter," Liu said.
Barclays Capital said in a research note that while the PMI suggested softening activity, pipeline price pressures remain high.
Lu Zhengwei, an Industrial Bank senior economist, said he expects inflation to continue to test new highs as late as October before dropping. Lu added April's signs of moderation 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 M2 growth of 16 percent this year.
But Lu said it's unlikely interest rates will be increased this month.
China has raised interest rates four times, 25 basis points each time, since October to increase the cost of credit to ward off liquidity driven inflation.
The benchmark one-year deposit rate is 3.25 percent. March inflation rose to a 32-month high of 5.4 percent.
The bank reserve requirement has been raised 10 times since 2010, with four increases coming this year.
People's Bank of China Governor Zhou Xiaochuan said on April 16 that there is not a clear upper limit on the required reserve ratio given ample domestic liquidity. He also said more aggressive interest rate hikes will lead to hot money inflows due to excess liquidity internationally.
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