Central bank urged to adjust monetary policy
China should adjust its current prudent monetary policy and pursue a "moderately loose policy" by further cutting benchmark interest rates and reducing banks' reserve requirement ratio (RRR), a report said Saturday.
China is currently pursuing a prudent monetary policy that is relatively tight, but the current economic climate means that this policy can no longer achieve its original goal of stabilizing growth, according to a summary of the report posted on the website of the National Academy of Development and Strategy at Renmin University of China.
The report suggested it's time for China to change its current monetary policy, and to again lower lending and deposit interest rates and reduce the RRR to "accommodate the trend of the Chinese economy."
"If China cuts interest rates by 0.5 percentage points, it would result in a sizable reduction in the financial burden," Fan Zhiyong, a professor with the School of Economics at Renmin University, said Saturday at a forum in Beijing, according to a report by news portal sina.com.cn. Fan did not offer specific suggestions about how much the RRR should be cut.
Under the current policy, the rate of money growth is declining, and real interest rates are higher than nominal interest rates, after taking inflation into account, Fan noted. Also, the real GDP growth rate is much lower than the nominal growth rate in the first two quarters of 2015, which shows that the Chinese economy is facing heavy deflation pressure, and moderately loose monetary policies are necessary, he said.
Another report released by the Economic Observer newspaper on Sunday suggested that China will continue to maintain a prudent monetary policy, but might introduce more loosening. Citing a survey it conducted among 79 economists, the report said more than half of the economists predicted that China would cut interest rates and the RRR twice more before the end of the year.
The report indicated that China's economy was continuing to slow down in the third quarter and that the year-on-year GDP growth rate for the quarter will likely be below 7 percent. One of the most effective tools to maintain stable growth, the report pointed out, is to expand infrastructure investment by providing sufficient capital, which can be achieved through lower interest rates.
Meanwhile, the People's Bank of China (PBC), the central bank, has shown no signs of planning for a further cut in interest rates or the RRR.
In a statement posted on its website on Friday, the PBC said it would continue to implement prudent monetary policies, while being flexible in using different policy tools.
Amid a slowdown in the economy and turmoil in the stock market, the Chinese central bank has cut interest rates and the RRR twice since June. Most recently, the PBC announced on August 25 a reduction in the one-year benchmark lending and deposit rates by 0.25 percentage points, and an RRR cut of 0.5 percentage points.
Liu Dongliang, a senior analyst at China Merchants Bank, said the central bank will soon take similar measures again.
"Don't listen to what the central bank says, but watch what it does," Liu told the Global Times Sunday. He said there is still room for interest rate and RRR cuts, and that there is a consensus this will happen.
The previous rounds of cuts did not have a strong effect in stimulating demand, and the economy and the capital market are still facing a lot of pressure, Liu noted. Although the effectiveness of launching further cuts is hard to measure, they are necessary, he said, adding that the cuts will probably come in October and December.
Liu Xuezhi, an analyst at Bank of Communications, also said there will be further interest rate and RRR cuts to stimulate economic growth and increase liquidity.
He told the Global Times Sunday that interest rates are already low, but further appropriate cuts would be conducive for stability in the capital market.
However, Liu Xuezhi said that it is hard to predict the extent to which the PBC will lower interest rates and the RRR, assuming such cuts will be made.
