China’s Monetary Policy Slows its Economy
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Macquarie released a report that China’s monetary policy has been tightened and its just a matter of time before the economy slows down.
[quote]Our basic view of the economy is that the government has aggressively tightened monetarypolicy over the course of the last few months. Tightening works with a lag, so while growth momentum was still very strong in 1Q11, we expect it to slow towards mid-year and into 3Q11.
Macquarie released a report that China’s monetary policy has been tightened and its just a matter of time before the economy slows down.
[quote]Our basic view of the economy is that the government has aggressively tightened monetarypolicy over the course of the last few months. Tightening works with a lag, so while growth momentum was still very strong in 1Q11, we expect it to slow towards mid-year and into 3Q11.We would expect this slowdown to be manifested in the PMI‟s falling below 50, a downturn that is reflected in our below-consensus forecast for GDP of 8.5-9.0% this year.This slowdown should take some of the pressure off inflation, particularly towards the end of 3Q11. With the growth slowdown also likely to result in an unwelcome rise in the tradesurplus, we would expect an easing of policy later in the summer, putting a floor under growth into 2012.[/quote]
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Related Article: China Economic Analysis
This analysis might seem surprising, given that benchmark rates in real terms remainnegative. But for credit growth in China, benchmark rates aren‟t important, we believe.
Here’s a graph from February 2011 forecast for China against global markets from The Globe and Mail:
Rather than raising rates in the hope of dampening credit growth, policymakers in China act todetermine directly how much the banks can lend. On the one hand, regulators tell banks they can‟t issue loans. On the other, they use sterilisation – hikes in the Reserve RequirementRatio (RRR) and sales of PBC bills – to take liquidity away from banks so they don‟t have the wherewithal to be able to lend. These measures have helped lending growth to slow from19.9% YoY at the end of 2010 to 17.5% now.
Read the full story on The Singapore Business Review.
And read about China’s Economy, including forecasts, industry information and trade statistics on EconomyWatch.com.
