[October 23, 2009] Analysis: China's monetary policy tends to turn steady next year Tweet BEIJING, Oct 23, 2009 (Xinhua via COMTEX) -- Along with the constant recovery of China's macro economy, the deflation pressure is fading gradually and the inflation expectation is rising for the country. China's monetary policy therefore tends to turn steady in the next year from the current moderately easy one to cope with the global financial crisis, analysts predict. Regulating inflation expectation' stressed A key point of China's macro-regulation for the rest of the year would be to balance the tasks of ensuring a steady and relatively fast economic growth, adjusting economic structure and regulating inflation expectations, according to a statement released after a State Council executive meeting, which was chaired by Chinese Premier Wen Jiabao, Wednesday. That was the first time that China's policy-makers made controlling inflationary expectations one of their priority tasks. Earlier in the Summer Davos 2009 held in Dalian this September, Premier Wen Jiabao pointed out to keep alert to various potential risks including inflation. Ma Delun, vice governor with China's central Bank recently also noted in public that the inflation pressure was turning heavy for China as the macro economy recovered constantly in the third quarter. CPI, PPI see consecutive growth on month China's consumer price index (CPI) and producer price index (PPI) dipped 1.1 percent and 6.5 percent year on year, respectively, in the first nine months, according to statistics released by China's National Bureau of Statistics (NBS) Thursday. In comparison with the past several quarters, the year-on-year decline of CPI and PPI has largely narrowed, The September CPI was up 0.4 percent over the previous month and the September PPI rose 0.6 percent from a month earlier. China's CPI has seen a month-on-month growth for two consecutive months and the PPI has obtained a month-on-month growth for six months in a row. Some Chinese economists predict that China's CPI is possibly to achieve a year-on-year rise in November. Liu Shijin, deputy director with the Development Research Center of the State Council, noted Thursday that China faces heavy pressure to control the CPI growth within three percent in the next year. Possibility exists for the CPI to grow over five percent year on year in 2010. Monetary policy likely to turn steady next year As inflation expectations in China are increasing, considering the movements of both CPI and PPI and the huge amount of bank lending this year, China's monetary policy is very likely to turn steady next year, in comparison with the moderately easy monetary policy adopted by the Chinese government this year. By the end of September, the newly added loans of China's commercial banks amounted to an unprecedented 8.65 trillion yuan. The broad measure of money supply, M2, which covers cash in circulation and all deposits, was up 29.31 percent from a year earlier to 58.54 trillion yuan (8.57 trillion U.S. dollars) at the end of September. The increase in money supply was 20 percentage points higher than China's economic growth, Yang said. "Usually soaring money supply will lead to price rises and cause inflation." Large credit input has increased the difficulties for China on the management of liquidity, and add the pressure of price rise in the future, noted Lian Pin, the chief economist of the Bank of Communications. Lian pointed out that accelerated inflow of overseas capital in recent term and the real economy's still strong demand for loans, added difficulties for China's management on liquidity. "China's economy is at a crucial stage of stabilization and accelerating growth, a shift in monetary policy stance is unlikely in short term," said Lian Ping. But Lian meanwhile deems that if the price in China presents a quick rise in the future, the monetary policy will likely to turn tighter. Ha Jiming, the chief economist with China International Capital Corporation Limited (CICC), deems that the moderately easy monetary policy will be maintained till the end of this year, but the monetary policy is to turn steady in the next year. [ Back To TMCnet.com's Homepage ]