China May Forgo Easing as Economy Rebounds, Survey Shows
The central bank will probably keep the benchmark one-year lending rate at 6 percent through the end of 2012, based on median estimates in a survey conducted between Oct. 18 and Oct. 22, instead of prior forecasts for a quarter percentage-point reduction. China may lower the reserve ratio by a half point this year, the survey showed, compared with the full point projected in September.
Government data showed factory output and retail sales accelerated in September and Premier Wen Jiabao said the economy will keep showing “positive changes” even as growth slowed for a seventh quarter. Any extension of China’s three-month pause from monetary easing would contrast with stepped-up stimulus in the U.S. and Japan and interest-rate cuts by South Korea, Australia and Brazil.
“China’s economic growth is stabilizing and momentum is picking up as previous easing policy filters through,” said Nie Wen, a Shanghai-based economist at Huabao Trust Co., who changed his forecast to no interest-rate cuts from one this year. “This, coupled with the concerns over a rebound in inflation and property prices, means the window for cutting interest rates is closed for the rest of the year.”
The third quarter may mark a bottom for the slowdown and the economy will stage a “mild rebound” in the fourth quarter with expansion of 7.6 percent to 7.7 percent, Nie said. Inflation may rise to 2.5 percent by the end of year and as high as 3 percent in the first quarter of 2013, he said.
The economy expanded 7.4 percent in the July-September period from a year earlier, while consumer prices rose 1.9 percent last month.
Five of 25 economists surveyed forecast one lending-rate cut in the fourth quarter, with the rest projecting no change. In the previous survey conducted in September, 15 out of 25 economists expected at least one reduction in rates.
The People’s Bank of China cut interest rates in June and July and lowered banks’ reserve requirements three times from November to May. China has refrained from further easing as officials prepare for a once-in-a-decade leadership handover that is set to begin on Nov. 8.
Premier Wen said growth has started to stabilize, the economic situation in the third quarter was “relatively good” and the government is confident of achieving full-year targets, according to an Oct. 17 report by the official Xinhua News Agency. Wen at the same time said curbs on the property market have showed “initial effects” and the policy will be maintained.
The median forecasts in the Bloomberg News survey are for 7.7 percent growth in the fourth quarter and the full year, unchanged from September’s projection.
The nation will keep taking steps to stabilize growth and has “relatively large room” to use monetary and fiscal policies compared with other countries, Yi Gang, deputy central bank governor, said this month.
The latest set of data shows the economy “may have bottomed out” and the imperative for an interest-rate cut has weakened, said Jimmy Zhu, a Singapore-based economist with broker FXPrimus Ltd.
The central bank will pump temporary cash into markets instead of lowering the reserve ratio because of concern that property prices will rebound, said Zhu, who forecasts a ratio reduction in the first quarter and no rate cut.
China’s September new home prices rose in fewer than half the cities monitored by the government from a month earlier, a statistics bureau report showed on Oct. 18, indicating property curbs are stabilizing the market.
Not everyone is convinced the government will hold off from easing. Capital Economics Ltd. maintained its September forecast for a quarter-point interest-rate cut and a 1 point reduction in the reserve ratio “despite a small rebound” in the latest data, said Mark Williams, chief Asia economist in London.
“The economy remains relatively weak, the government still has room for policy action and we still believe they will continue to loosen policy a little bit further,” Williams said. Another reserve-ratio cut would help bank lending “remain as strong as it has been,” he said.
Zhu Haibin, Hong Kong-based chief China economist for JPMorgan Chase & Co., forecast a half percentage-point cut in the reserve-requirement ratio this year and no interest-rate changes, compared with a previous forecast for 1.5 points of ratio cuts and a quarter-point rate reduction.
With growth momentum improving and inflation picking up toward the end of the year, “the likelihood of further interest-rate cuts in the rest of 2012 is diminishing,” JPMorgan’s Zhu said in an Oct. 18 research note.
“In addition, the busy political agenda going ahead also implies that the prospect of meaningful monetary policy easing in the near term becomes more remote,” Zhu wrote.