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TMCNet: Analysis: China likely to maintain monetary policy stable in near term

[February 28, 2013]

Analysis: China likely to maintain monetary policy stable in near term

BEIJING, Feb 28, 2013 (Xinhua via COMTEX) -- China is likely to maintain its monetary policy stable in March, in which case the flexible use of repos and reserve repos would become the major tool for the country's central bank to keep relatively ample market liquidity.

As the Chinese economy is stabilizing and begins to rebound, the necessity to stimulate the economy via loosening monetary policy is abating. The target of the country's monetary policy will focus on maintaining stable market liquidity.

The HSBC's preview for China's manufacturing purchasing managers index (PMI) dropped to a four-month low to stand at 50.4 in February, but analysts widely believe that Chinese economy is still on track for a gradual recovery, despite the moderation of February's flash PMI.

In addition, the rise of price levels has also restricted the room for further loosening monetary policy. Institutions widely predict that the Consumer Price Index (CPI) in February will rise 3 percent on food price hikes. In view of the rising housing prices and social financing, market expectations for inflation have gone strong.

Positions for foreign exchange purchase, an important factor affecting China's market liquidity, are expected to go up steadily, on the rising expectation of the appreciation of the RMB and the recovery of the Chinese economy.

On this expectation, market liquidity is expected to remain relatively ample in the near term, in turn reducing the necessity for the central bank to cut reserve requirement ratio (RRR).

In the near term China's central bank will likely continue to maintain a prudent or relatively loose monetary policy to ensure support for the economy.

The central bank is likely to maintain the RRR and interest rates unchanged in near term, and the flexible use of repos and reserve repos will become the major tool for the central bank to manage market liquidity. (Edited by Jiang Yujuan, jiangyj@xinhua.org)

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