The most intensive phase of China’s monetary tightening may end if the nation reports more trade deficits or small monthly surpluses, the official China Securities Journal said in a front page editorial today.
The world’s second-biggest economy had a $1.02 billion trade deficit in the first three months of this year, the first quarterly shortfall in seven years.
“An improvement in the balance of international payments is conducive to alleviating inflation pressure and expanding the room for monetary policy maneuvering,” the editorial said. It will also allow for an increase in the flexibility of the yuan’s exchange rate, according to the paper, which is owned by the official Xinhua news agency.
Premier Wen Jiabao has pledged to contain gains in food and housing prices that may undermine social stability. The central bank has raised interest rates four times and boosted lenders’ reserve requirements six times since the third quarter of last year to curb inflation.
The tightening cycle is near its end, with credit conditions now “very tight,” Macquarie Group Ltd. economists wrote in a note yesterday. “The risk is now slowing growth rather than spiraling inflation,” analysts led by Paul Cavey said.
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