China May Ease Monetary Policy to Boost Economy

BEIJING, Apr. 8 -- According to media reports, China's State Council is to discuss a further round of economic stimulus measures, and the central bank may cut interest rates and the deposit reserve ratio.

    Since the central bank reduced interest rates and the deposit reserve ratio on December 23, 2008, there have been no further changes in monetary policy.

    According to projected data, the central bank pumped 149.2 billion yuan into the economy in the first quarter through open market operations and this trend is set to continue.

    Insiders suggest the reserve ratio to be reduced from 15.5 percent to 10 percent in the second quarter but say no decision will be made before the publication of the first quarter economic and financial data.

    If bank loans fall in the second quarter, the central bank will make further cuts to the reserve ratio, and may even reduce interest rates.

    While there is agreement on the likelihood of cuts to the reserve ratio, there are different views on whether central bank will reduce interest rates.

    Fan Gang, a member of the Bank's Monetary Policy Committee (MPC), Zhang Jianhua, Secretary of Research Bureau of Central Bank and Zhou Xiaochuan, governor of China's Central Bank have said separately on a number of occasions that China will stick to a flexible interest rate policy, which would allow for cuts in rates.

    But Yi Gang, vice governor of Central Bank has said in mid March that the bank needs to take the interests of savers into consideration when adjusting rates.

    Managing director at Credit Suisse Tao Dong thinks interest rates have almost reached bottom.

    But everyone agreed that, whether by cutting interest rates, the reserve ratio, open market operations, or a combination of all three, the bank will continue to follow a "moderately loose" monetary policy.

    (Source: China.org.cn)