Bloomberg News

China Unlikely to Raise Rates, Securities Journal Editorial Says

October 10, 2011

Oct. 10 (Bloomberg) -- The likelihood China will raise interest rates and banks’ reserve requirements this quarter is “very small,” as further tightening may hurt growth, the official China Securities Journal said in an editorial.

The central bank’s existing monetary stance will continue into next year, barring any significant changes in the economic environment, to control inflation expectations, the newspaper said in a front-page commentary today.

Emerging-market central banks from China to Brazil have left interest rates unchanged in recent weeks or cut borrowing costs to support growth as a deepening debt crisis in Europe threatens global expansion. Consumer-price gains in the world’s second-biggest economy may have exceeded 6 percent for the fourth month in September and People’s Bank of China Governor Zhou Xiaochuan said last month that “high inflation” remains his top concern.

Monetary policy may enter an “observation period,” the Securities Journal said. When the trend of moderating inflation is consolidated, the government should fine tune its policies and make them more forward looking to avoid hurting economic growth, it said. The possibility of a cut in the amount of deposits lenders must set aside as reserves can’t be excluded if the cash squeeze affecting some industries needs to be eased, the newspaper said.

“Tight monetary policy should be maintained as long as there is no big reversal in the economic situation,” Li Yang, a former academic adviser to the PBOC, said in an interview in today’s Shanghai Securities News. “It is still too early to talk about changing the monetary policy stance.”

Slowing Growth

Economic growth in the first half of 2012 will slow more “obviously” compared with the second half of this year, Li, who is now the vice president of the Chinese Academy of Social Sciences, was quoted as saying by the newspaper. As long as the slowdown doesn’t threaten job growth it should be tolerated, he said.

China’s gross domestic product expanded 9.5 percent in the second quarter compared with a year earlier, slowing from 9.7 percent in the first three months. That pace could fall to as low as 7.7 percent in the first quarter of next year as faltering expansion in the U.S. and Europe weakens China’s export growth, UBS AG economist Wang Tao wrote in a Sept. 30 research note.

The PBOC has increased interest rates five times and boosted banks’ reserve requirements nine times over the past year to rein in prices and curb speculation in the property market. Wen said last week that initial progress has been made in containing inflation.

Moderating Inflation

Consumer-price gains may have eased to 6.1 percent in September from a year earlier, the second straight decline from a three-year peak of 6.5 percent in July, according to the median forecast in a Bloomberg News survey of 21 economists. The inflation rate has climbed by more than the government’s 2011 target of about 4 percent every month.

The statistics bureau is scheduled to release September inflation data on Oct. 14.

The government’s campaign to curb lending has led to a credit squeeze among smaller companies. During a visit to the eastern city of Wenzhou last week, Wen urged banks to improve financial support for such businesses, the Xinhua news agency reported on Oct. 5.

--Lifei Zheng. Editors: Nerys Avery, Paul Panckhurst

To contact Bloomberg News staff for this story: Lifei Zheng in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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