Bloomberg News

China Politburo Affirms ‘Prudent’ Monetary Policy Next Year

December 09, 2011

(Adds economist’s comment in the fourth paragraph.)

Dec. 9 (Bloomberg) -- China will maintain a “prudent” monetary policy and a “proactive” fiscal policy next year, the official Xinhua news agency reported, citing a meeting of the Communist Party’s Politburo chaired by President Hu Jintao.

The decision of the Politburo, the 25-member body that oversees policy-making, came ahead of a work conference that will set economic policy guidelines for the coming year. That event may take place Dec. 12-14, according to the Economic Observer newspaper.

China has already eased monetary policy to aid growth, this month cutting the amount of cash lenders need to set aside as reserves for the first time since 2008. Nomura Holdings Inc. estimates that the economy may expand only 7.9 percent in 2012, the slowest pace in 13 years, as export growth weakens and investment in housing cools. Data today showed industrial- production growth weakening and inflation moderating.

“The word prudent will have a very elastic meaning in 2012,” said Stephen Green, a Hong Kong-based economist with Standard Chartered Plc. While this “likely signals a cautious approach” to further easing in the short term, “the money tap will be loosened, no doubt,” he said.

In December last year, the Politburo said the nation would shift its monetary policy stance to “prudent” from “moderately loose,” with controlling inflation the top priority. At that point, the government had already raised interest rates and reserve requirements, showing how changes in the official labels for policy can lag behind the implementation of shifts.

Stimulus Aftermath

Officials are still wrestling with the aftermath of a 4- trillion yuan ($631 billion) stimulus package and record lending that helped to lift the economy out of the 2008-09 global financial crisis.

Premier Wen Jiabao said in November that policies will be “fine-tuned” as needed. Inflation has cooled for four consecutive months after reaching a three-year high of 6.5 percent in July.

“The scope for monetary easing is limited given inflation risks and negative real interest rates,” said Cui Li, a Hong Kong-based economist at Royal Bank of Scotland Plc. “Fiscal policy will remain the key pillar to shore up growth in light of global uncertainties.”

--Li Yanping. With assistance from Zheng Lifei in Beijing. Editors: Paul Panckhurst, Nerys Avery

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

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


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