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Tuesday 2 February 2010
China to keep policy loose despite price pressure
China’s central bank will ensure that money and credit growth remain ample in 2010, even though inflation is likely to rise further, it said in a report on Friday.
BEIJING, Jan 29 - China’s central bank will ensure that money and credit growth remain ample in 2010, even though inflation is likely to rise further, it said in a report on Friday.
Its reaffirmation that bank loan growth ought to be reasonable and balanced came at the end of a week in which fears that China was slamming the door on lending shook markets around the world.
In a quarterly statistics report, the People’s Bank of China expressed broad satisfaction with both the state of the economy and current policy settings, insisting that it would stick to its “appropriately loose” monetary stance.
It said that consumer price inflation had bottomed out in the fourth quarter of 2009 and that leading price indicators were pointing up, meaning that maintaining price stability would be harder. But it also outlined reasons to be optimistic that inflation would remain under control.
“Rising international commodity prices, high domestic money and credit levels, continuous growth in domestic demand and adjustment of resource prices will place upward pressure on the overall price level in 2010,” the central bank said.
“Meanwhile, the sixth consecutive year of grain output growth will play a positive role in stablising food prices. Overcapacity in some sectors and a sufficient supply of consumer goods will also help to curb price rises,” it added.
Consumer price inflation picked up to 1.9 percent in December, its highest in 13 months. Inflation is expected to be quite mild at 3 percent this year, according to a Reuters poll, though some analysts believe it could soar to greater heights, requiring more aggressive tightening by the government.
“Higher policy rates and a stronger currency need to be part of the package and we expect moves in this direction starting in the next few months,” Brian Jackson, an economist with the Royal Bank of Canada in Hong Kong, said in a note about the central bank’s report.
The central bank said that China’s stunning economic recovery, from annualised gross domestic product growth of 4.3 percent in the fourth quarter of 2008 to an annualised rate of 11.3 percent in the fourth quarter of 2009, would gain more steam this year.
“With the stablisation in global economy, the pick-up in private investment sentiment and stronger corporate profitability, China’s economic recovery trend will be enhanced further,” it said.
Reports and rumours of Beijing’s clampdown on bank lending after a credit surge in the first half of January weighed on global investor sentiment this week. Officials have stressed that they are not calling a halt to lending, but rather trying to ensure that credit flows are evenly balanced over the course of the year.
According to a recent Reuters poll of economists, China’s economy is likely to grow 9.5 percent in 2010, faster than previously forecast, and the central bank will raise interest rates twice during the year to keep inflation in check. (Reporting by Zhou Xin, Langi Chiang and Simon Rabinovitch; Editing by Toby Chopra)
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China to keep policy loose despite price pressure
Reuters
29 January 2010
BEIJING, Jan 29 - China’s central bank will ensure that money and credit growth remain ample in 2010, even though inflation is likely to rise further, it said in a report on Friday.
Its reaffirmation that bank loan growth ought to be reasonable and balanced came at the end of a week in which fears that China was slamming the door on lending shook markets around the world.
In a quarterly statistics report, the People’s Bank of China expressed broad satisfaction with both the state of the economy and current policy settings, insisting that it would stick to its “appropriately loose” monetary stance.
It said that consumer price inflation had bottomed out in the fourth quarter of 2009 and that leading price indicators were pointing up, meaning that maintaining price stability would be harder. But it also outlined reasons to be optimistic that inflation would remain under control.
“Rising international commodity prices, high domestic money and credit levels, continuous growth in domestic demand and adjustment of resource prices will place upward pressure on the overall price level in 2010,” the central bank said.
“Meanwhile, the sixth consecutive year of grain output growth will play a positive role in stablising food prices. Overcapacity in some sectors and a sufficient supply of consumer goods will also help to curb price rises,” it added.
Consumer price inflation picked up to 1.9 percent in December, its highest in 13 months. Inflation is expected to be quite mild at 3 percent this year, according to a Reuters poll, though some analysts believe it could soar to greater heights, requiring more aggressive tightening by the government.
“Higher policy rates and a stronger currency need to be part of the package and we expect moves in this direction starting in the next few months,” Brian Jackson, an economist with the Royal Bank of Canada in Hong Kong, said in a note about the central bank’s report.
The central bank said that China’s stunning economic recovery, from annualised gross domestic product growth of 4.3 percent in the fourth quarter of 2008 to an annualised rate of 11.3 percent in the fourth quarter of 2009, would gain more steam this year.
“With the stablisation in global economy, the pick-up in private investment sentiment and stronger corporate profitability, China’s economic recovery trend will be enhanced further,” it said.
Reports and rumours of Beijing’s clampdown on bank lending after a credit surge in the first half of January weighed on global investor sentiment this week. Officials have stressed that they are not calling a halt to lending, but rather trying to ensure that credit flows are evenly balanced over the course of the year.
According to a recent Reuters poll of economists, China’s economy is likely to grow 9.5 percent in 2010, faster than previously forecast, and the central bank will raise interest rates twice during the year to keep inflation in check. (Reporting by Zhou Xin, Langi Chiang and Simon Rabinovitch; Editing by Toby Chopra)
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