China's central bank said on Monday that inflation, which fell in August from a three-year high, is still too high and it would maintain its monetary policy settings despite heated debate among economists about a possible relaxation. Data last week showed China's annual consumer inflation eased to 6.2 percent in August from 6.5 percent in July, domestic demand held up well and exports remained resilient to the European debt crisis and a slowing US growth.
"Inflation is still too high, and stabilising overall price levels remains the top priority of macro-economic policy," it said in the statement on its website (www.pbc.gov.cn). "Some factors driving up prices have been controlled to an extent, but they have not been fundamentally eliminated," the central bank said. China would "stick to a prudent monetary policy and maintain appropriate money and credit growth," it added.
The central bank has raised bank reserve requirements nine times and increased interest rates five times since last October to mop up excess cash, which is partly fanning record inflation. Economists think Beijing is unlikely to drop its official prudent monetary policy stance until it sees a clear fall in annual inflation, which may have peaked in July but could remain high in September and October due to seasonal factors.
The government had set a target of maintaining inflation at 4 percent on average during 2011. After the first eight months of the year, the average is 5.6 percent. However, some of those economists say that before it changes its official line, probably towards the end of the year, the central bank could selectively put in place easing steps to weather a slowdown in global growth.
"We expect some 'selective' or 'targeted' easing in the months ahead, although we do not expect an official switch of the policy bias in the near term," said Jian Chang at Barclays Capital in Hong Kong. The central bank also clarified its view on the slowdown in money supply growth, which touched a seven-year low in August. Liquidity in the banking system may not be as tight as the data suggests, because of the widespread use of wealth management products by banks to take some deposits and loans off their balance sheets, PBOC said.
China's broad M2 measure of money supply growth slowed to 13.5 percent in August, the lowest since October 2004. It was also the fifth consecutive month that annual money supply fell below official target of 16 percent for 2011. New local-currency loans hit 548.5 billion yuan in August, much more than a year ago when China implemented a loose monetary policy, the central bank said. Yu Song at Goldman Sachs echoed the point, and took it further to say that monetary conditions were looser in August than in July.
"Whether this represents a change in the policy stance is still too early to tell," he added. The central bank has refrained from any substantial tightening moves since early July, though it issued central bank bills to a selective group of banks last week and widened the base of calculating deposits earlier, crimping banks' ability to lend.
Comments
Comments are closed.