China should fine-tune monetary policy based on economic growth

BEIJING, Apr 22 (Reuters): China should fine-tune monetary policy in a pre-emptive way based on economic growth and price changes, the official Xinhua News Agency said on Monday, citing a top-level meeting chaired by President Xi Jinping.
"Monetary policy needs to be neither too tight, nor too loose and should be fine-tuned in a timely and pre-emptive way based on economic growth and changes in price situations," Xinhua quoted the Central Financial and Economic Affairs Commission as saying.
The report was the fourth from a top-ranking policymaking body in China in less than two weeks, and comes as financial markets debate how much more additional support Beijing will provide to the world's second-largest economy after surprisingly resilient data released last week.
The economy expanded at a steady 6.4 per cent pace in the first quarter, defying expectations for a further slowdown, with industrial output, retail sales and investment in March all growing faster than expected following a raft of growth-boosting measures rolled out in recent months.
China's growth last year cooled to a near 30-year low of 6.6 per cent, weighed down by weak investment and the escalating trade war with the United States.
The Xinhua report on Monday did not give more details on the reference to watching price changes.
Producer and consumer price gauges in China have picked up, easing concerns about deflationary risks, but broader inflation levels are still modest.
The policy comments from the financial commission meeting largely echoed those from meetings of China's Politburo, the State Council and the central bank in the past two weeks.
A statement on Friday from the Politburo, a top decision-making body of the Communist Party, said China will maintain policy support for the economy, which still faces "downward pressure" and difficulties despite better-than-expected first quarter growth. It said authorities will strike a balance between stabilizing economic growth, promoting reforms, controlling risks and improving people's livelihoods, adding that China would forward with structural efforts to control debt levels and prevent speculation in the property market, it said.
Chinese stock markets fell sharply on Monday as investors feared the government will temper the pace of further policy easing if the economy continues to improve. China's major stock indexes have surged around 30 percent so far this year on expectations stimulus will stabilise the economy.
While analysts cautioned it was too early to call a turnaround, some market watchers bumped up their China growth forecasts after last week's data and lowered their expectations of further support measures.
Monday's comments from the financial commission also reiterated that China will step up fiscal policy and strengthen macro counter-cyclical adjustments, a phrase that usually refers to efforts to reduce pressure on the economy.
In March, the government announced billions of dollars in additional tax cuts and infrastructure spending to help businesses and protect jobs.
Regulators are likely to keep up efforts to keep credit available to smaller firms at more affordable rates, though there are concerns that a recent surge in bank lending could fuel another jump in bad loans and speculation in property markets.
"The key takeaway from the (policy) meetings is that there is limited room for further marginal monetary easing...However, we don't see a U-turn of its monetary policy any time soon." analysts at OCBC said in a note.