The intensity of fine-tuning of the monetary policy next year may be increased.

by ka888g68u on 2009-12-08 13:19:01

Next year, the fine-tuning of monetary policy may be intensified. Experts debate whether interest rates should be raised.

The Central Economic Work Conference proposed maintaining the continuity and stability of macroeconomic policies, continuing to implement an active fiscal policy and moderately loose monetary policy. It is necessary to closely track changes in domestic and international economic situations and control the growth rate of money and credit. Analysts believe that next year, while overall liquidity remains abundant, the intensity of monetary policy adjustments after the second quarter may increase, and relevant regulatory measures may be introduced.

Liquidity remains relatively ample. Analysts believe that next year's credit growth will still maintain a certain level of strength, and liquidity will remain relatively abundant.

Har Jiming, chief economist of China International Capital Corporation, and Wang Qing, chief economist for Greater China at Morgan Stanley, both stated in interviews with China Securities News that next year's new credit could be around 7-8 trillion yuan.

Har Jiming believes that next year liquidity will still be relatively ample: first, many projects have just begun, and follow-up funding is essential; second, corporate deposit growth has been rapid this year, indicating that part of this year's loans have not yet been spent, which also provides support for next year's liquidity; third, expectations for RMB appreciation are strong next year, and foreign exchange reserve growth will be faster than this year. Next year’s monetary growth will be "two-pronged": credit growth + foreign exchange reserve growth. The expected broad money supply growth rate next year will be over 20%.

Regulatory policies may be introduced in the second quarter. Niu Li, head of the Macroeconomic Department of the National Information Center's Economic Forecasting Division, said that the Central Economic Work Conference did not show a clear inclination regarding the tone of monetary policy, indicating that next year's policies will be adjusted according to economic conditions rather than adopting this year's emergency-style loose policy.

Analysts believe that the statement "closely track changes in domestic and international economic situations" again shows that the timing of China's monetary policy exit will be closely related to the Federal Reserve's policies. Due to the lack of new growth points, although the economy is improving, the employment situation in the United States has not improved. The unemployment rate in October hit a new high since the crisis, and although it slightly improved in November, it remains high at 10%, showing that the recovery of the U.S. economy is not entirely satisfactory. The Federal Reserve's exit from its loose policy will take some time.

Therefore, Har Jiming said that if the U.S. does not raise interest rates, it will be difficult for China to do so because raising interest rates would lead to more hot money inflows. The earliest possible U.S. interest rate hike will be in the second half of next year, so the earliest possible interest rate hike in China will also be in the second half. The statutory deposit reserve ratio may be adjusted, with the earliest possible adjustment occurring during the "Two Sessions" next year.

Wang Qing also said that the earliest possible interest rate hike in China will be in the second half of next year.

Regarding the exchange rate, Har Jiming expects that RMB appreciation may become evident in the second quarter of next year, with a possible appreciation of 3%-5% against the USD for the whole year. It is expected that exports will return to positive growth in March or April of next year. In addition, the GDP growth rate in the first quarter of next year may be very fast, possibly between 10%-11%. At that time, various macroeconomic indicators may significantly rise, thus increasing the probability of implementing some regulatory policies.

Lu Lei, chief economist of United Securities, believes that the most relaxed liquidity point will appear in the first quarter of 2010. Following this, there may be two scenarios: one is that the global economy accelerates recovery, leading to the withdrawal of loose policies by global central banks in the second quarter of 2010 becoming a trend. China will also face the tightening monetary pressure caused by the CPI turning positive; the second scenario is that global economic growth does not meet expectations, policies remain loose, but the scale of commercial bank lending will significantly decrease. Regardless of which situation occurs, it indicates that the excessively loose liquidity situation will end in the second quarter of 2010.