Apply stable, looser monetary policy for rainy day: Expert

Updated: Jul 9, 2021 Print
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A worker counts Chinese currency renminbi at a bank in Linyi, East China's Shandong province. [Photo/Xinhua]

As the low cardinal number effect fades away, China's economic growth rate may slow to 5 percent to 6 percent in the second half of this year, said Sheng Songcheng, adjunct professor of economics and finance at China Europe International Business School, adding positive monetary policy should be prepared for a rainy day, reported Tuesday.

China's GDP in the first quarter recorded 18.3 percent growth year-on-year, and 8 percent growth also is expected for the second quarter, but the foundation for economic recovery has not been solid, as problems such as imbalanced and inadequate development protrude, said Sheng, who also is the former director of the People's Bank of China's statistics and analysis department. As a complex and challenging environment is at home and abroad, the slow recovery of domestic demand and the uncertain growth of external demand still mean small and middle-sized enterprises face considerable difficulties, Sheng added.

Sheng noted the second half of this year is an important window phase for China to apply a stable and looser monetary policy, and to lower rationally the interest rate level, which leaves space for future monetary tightening.

Speaking of the reasons, Sheng said, first, China should be vigilant about a spill-over effect from the shift of the US Federal Reserve monetary policy. The FED's extreme loose monetary policy has taken effect. The US will hopefully realize full employment and a relatively long time of prosperity. In the wake of this, the FED will withdraw its stimulus that will narrow the interest rate gap between China and the US, reverse the money flow out from China and let the RMB exchange rate face depreciation pressure.

Second, there is little short-term inflationary pressure in China at and asset prices are relatively stable at present. It is a necessary condition for a looser monetary policy in the second half of this year. China's consumer price index was up 1.3 percent in May, year-on-year. The price index for a newly-built home in 70 major cities in China stood at low point of 4.5 percent.

Third, China's fiscal policy this year is weaker than last year, so coordination and support should be given from monetary policy. This year's deficit to GDP ratio is projected to be about 3.2 percent (down from 3.6 percent last year). Local governments will issue 3.65 trillion yuan ($563.70 billion) in special bonds (down from 3.75 trillion yuan last year), and no more special bonds (1 trillion yuan last year) will be issued to fight the epidemic.

Fourth, a reasonable cut in the interest rate is helpful to ease local government pressure to repay capital and interest, reduce financing costs for the real economy, especially small and medium-sized enterprises. The cut also will benefit investment, income and consumption growth.


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