Cautious monetary easing for economy
Print Edition
CHINA is set to ease monetary policies cautiously this year to ensure a slower but sustainable economic growth, Allianz SE said in a report yesterday.
“Interest rate cut is a good tool for China to stabilize the economy as inflation cooled and prices fell,” Allianz chief economist Michael Heise said in Shanghai.
“One or two cuts this year will be sensible” but excessive interest rate cuts will put China under capital outflow pressure once the US starts to normalize its monetary policies, he said.
But “I don’t think the country is getting into a cycle of interest rate cuts,” Heise said.
Heise said he expected the US Federal Reserve to increase interest rates in the middle of this year, triggering money outflows from Asian emerging markets including China to seek a safer haven.
The US tightening may reverse the easy global monetary environment and force countries to raise interest rates to stabilize cross-border money flows.
The People’s Bank of China has cut interest rate twice and reserve requirement ratio once for banks since November to lower funding costs and boost liquidity in the economy.
Allianz said China faces a dilemma as its monetary policy aims to control credit expansion and overcapacity while keeping economic growth.
China’s foreign exchange regulator said the country posted a record US$91 billion deficit in its capital account in the fourth quarter of last year, indicating a capital outflow.
Economists have noted a correlation between speculative money outflow and lower domestic interest rates.
But Allianz said China can better withstand the impact of the Fed tightening than many other Asian countries due to its relatively closed capital market and limited exposure to foreign debts.
The German insurer forecast China’s economy will grow 7 percent this year and expand 6.7 percent next year.
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