China Likely to Ease Monetary Policy Next Year, But Scope Limited -Researcher

First Published Wednesday, 28th November 2012 09:23 am - © 2012 Dow Jones


BEIJING--China will likely ease its monetary policy next year to help boost employment and support struggling companies as relatively mild inflation gives the central bank room to maneuver, a senior researcher with China's top economic planner, the National Development and Reform Commission, said Wednesday.

Chen Dongqi, deputy director with the planning agency's research department, told a financial forum that China may cut interest rates "by a certain extent" amid slower economic growth.

He didn't specify how much of a cut could be made, though he added that policymakers need to be cautious about any big move in monetary or fiscal policy. Some economists maintain that although price inflation may be moderate now, domestic and external factors could create greater price pressure later next year. Others contend that China needs to avoid a big stimulus program that could lead to wasteful spending and problem loans in the banking system.

Even though China's economy has been showing signs of recovery, companies are still under financial pressure amid an economic slowdown that has forced some to announce layoffs, the researcher said.

More than 10 million new jobs were created in urban areas in the first 10 months of this year but employment in rural areas declined, and the employment outlook isn't optimistic, said Mr. Chen.

China's central bank has cut interest rates twice this year as part of efforts to boost economic growth, but it hasn't made any further rate moves since its last reduction in July.

The central bank has also cut the bank reserve requirement ratio three times since November last year but it hasn't used this tool since its last action took effect in May. More recently it has relied on short term interbank money market operations to inject liquidity into the domestic market.

The researcher also said that China should cut rates to reduce the gap with interest rates in developed countries where they have fallen to almost zero in some cases. While he didn't elaborate, the higher onshore interest rates have usually been blamed for attracting "hot money," leading to asset bubbles.

China's gross domestic product growth is expected to reach 7.6% or 7.7% this year, he said, adding that growth will probably be higher next year. That growth level would be slightly better than the official target of 7.5% for this year but well below the levels of recent years.

Write to Yajun Zhang at yajun.zhang@dowjones.com

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