China unlikely to cut interest rate, required reserve ratio in near erm
Saturday, 14 March 2009
With the rebound of M1 growth rate to above 10 percent in February, China is unlikely to cut the interest rate and the required reserve ratio in the near future, analysts point out.
Macroeconomic data signal economic warm-up
China's M1 growth bounced back to 10.87 percent in February, according to statistics released by the central bank Thursday.
Liu Yihui, an economist with the Chinese Academy of Social Sciences, said the rebound was in line with the PMI (purchasing manager's index) rise, indicating buoyancy in business activities, faster-than-expected de-stocking process and economic warm-up.
Meanwhile, M2 growth in Feb. hit a record high since November 2003, at 20.48 percent, but fell short the expectation of 30 percent by some analysts, who hold the already large proportion of time deposits will further expand and worry about economic cool-off amid credit boom.
The lower-than-expected growth rate relieves such worries, said Liu.
M1 is likely to bottom out and rise further, given that its rebound usually lags behind M2 and the four-trillion-yuan economic stimulus package will be in full swing in Q2, said Pan Xiangdong, an analyst with Everbright Securities.
Early to predict bottom-out of economy
While saying that the economy may rebound in Q2 and Q3, Liu said it is hard to assert the economy has hit the bottom, because the growth right now is mainly driven by government expenditure.
If bank credit supply slows down in Q4, non-governmental investment and domestic consumption have not yet been shored up by then, or the external climate deteriorates, Chinese economy will be exposed to greater risks, he said.
Moreover, the gap between M1 and M2 growth rates, an indicator for economic boom, stood at 9.6 percent in February, shrinking 2.5 percentage points from January, but still at a level second to the highest.
That reflects continued boom in sectors benefiting from fiscal expansion and gloom in other sectors, said Lu Zhengwei, chief economist with Industrial Bank.
Notably, newly added medium and long-term loans for residents fell to 13.7 billion yuan in February, from 59.3 billion yuan in January, meaning further cooling off of the real estate market, since such loans are mainly mortgage loans.
Falling investment in real estate development will trickle down to manufacturing and durable consumer goods sectors, Liu said.
Follow closely on credit supply in future
At the current rate, credit supply will surely exceed five trillion yuan. In Premier Wen Jiabao's report on the work of the government, the goal of credit supply is set at "over five trillion yuan", giving leeway for new action plans if the 4-trillioin yuan stimulus package fails to produce desired effects such as driving non-governmental investment.
Lu holds that credit supply will maintain robust growth in March, considering aggressive efforts in open market operation in the first half of the month. If so, Q1 credit supply may fulfill 60 percent of the target set for the year, he estimates.
Incentives should be put in place for financial institutions to optimize credit structure. For that end, it is necessary to change the current interest rate mix to enable banks to cover potential credit risk, said he.
Given plenty of liquidity, the necessity to cut interest rate has been reduced and low loan-to-deposit ratio has made it unnecessary to adjust the required reserve ratio. And active fiscal policy and moderately loose monetary policy may better help boost the economy.--Xinhua
Macroeconomic data signal economic warm-up
China's M1 growth bounced back to 10.87 percent in February, according to statistics released by the central bank Thursday.
Liu Yihui, an economist with the Chinese Academy of Social Sciences, said the rebound was in line with the PMI (purchasing manager's index) rise, indicating buoyancy in business activities, faster-than-expected de-stocking process and economic warm-up.
Meanwhile, M2 growth in Feb. hit a record high since November 2003, at 20.48 percent, but fell short the expectation of 30 percent by some analysts, who hold the already large proportion of time deposits will further expand and worry about economic cool-off amid credit boom.
The lower-than-expected growth rate relieves such worries, said Liu.
M1 is likely to bottom out and rise further, given that its rebound usually lags behind M2 and the four-trillion-yuan economic stimulus package will be in full swing in Q2, said Pan Xiangdong, an analyst with Everbright Securities.
Early to predict bottom-out of economy
While saying that the economy may rebound in Q2 and Q3, Liu said it is hard to assert the economy has hit the bottom, because the growth right now is mainly driven by government expenditure.
If bank credit supply slows down in Q4, non-governmental investment and domestic consumption have not yet been shored up by then, or the external climate deteriorates, Chinese economy will be exposed to greater risks, he said.
Moreover, the gap between M1 and M2 growth rates, an indicator for economic boom, stood at 9.6 percent in February, shrinking 2.5 percentage points from January, but still at a level second to the highest.
That reflects continued boom in sectors benefiting from fiscal expansion and gloom in other sectors, said Lu Zhengwei, chief economist with Industrial Bank.
Notably, newly added medium and long-term loans for residents fell to 13.7 billion yuan in February, from 59.3 billion yuan in January, meaning further cooling off of the real estate market, since such loans are mainly mortgage loans.
Falling investment in real estate development will trickle down to manufacturing and durable consumer goods sectors, Liu said.
Follow closely on credit supply in future
At the current rate, credit supply will surely exceed five trillion yuan. In Premier Wen Jiabao's report on the work of the government, the goal of credit supply is set at "over five trillion yuan", giving leeway for new action plans if the 4-trillioin yuan stimulus package fails to produce desired effects such as driving non-governmental investment.
Lu holds that credit supply will maintain robust growth in March, considering aggressive efforts in open market operation in the first half of the month. If so, Q1 credit supply may fulfill 60 percent of the target set for the year, he estimates.
Incentives should be put in place for financial institutions to optimize credit structure. For that end, it is necessary to change the current interest rate mix to enable banks to cover potential credit risk, said he.
Given plenty of liquidity, the necessity to cut interest rate has been reduced and low loan-to-deposit ratio has made it unnecessary to adjust the required reserve ratio. And active fiscal policy and moderately loose monetary policy may better help boost the economy.--Xinhua