China PBOC Adviser Says Monetary Tightening Pressure Eased

Pressure on China to tighten monetary policy is easing as inflation will be “relatively low” this month due to slowing food-price gains, People’s Bank of China adviser Song Guoqing said.

Compared with January and February, the pressure has been “relieved,” Song, one of three academics who sit on the monetary policy committee, said at a forum in Beijing yesterday. He indicated he was giving his own view. China’s central bank has limited powers, with the State Council having the final say on interest-rate moves.

The People’s Bank of China drained cash from the financial system in each of the two weeks after a Lunar New Year holiday ended Feb. 15, prompting speculation that it was tightening amid concerns that inflation was accelerating and real-estate price gains were excessive. The State Council stepped up efforts to cool the property market on March 1, ahead of an annual meeting of the legislature that will see Li Keqiang take over from Wen Jiabao as premier.

The measures “will lead to downside risks to property prices and investment but the effectiveness of the policy depends on whether the money supply will be tightened as well,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a March 1 note. Monetary policy will probably tighten “in the next several months,” which will slow economic growth, he said.

Inflationary Pressure

“Low inflation” is still the main objective for China’s monetary policy, said Song, a Peking University professor who studied economics at the University of Chicago and was appointed a central bank adviser in March 2012.

Yi Gang, a deputy governor, said today the PBOC is “fully confident” of controlling inflation this year.

While the nation faces “some” inflationary pressure, the consumer-price index will rise about 3 percent in 2013, Yi told reporters today at the start of the annual meeting of the nation’s top advisory body. That compares with 2.6 percent last year.

Housing Minister Jiang Weixin said he was confident the government will be able to control home prices, the Shanghai Securities News reported on its website yesterday. Jiang, a member of the Chinese People’s Political Consultative Conference, spoke in Beijing on the eve of that advisory body’s annual meeting. The legislature, the National People’s Congress, will begin its session on March 5.

Recovery Peaked

China’s economy expanded 7.9 percent in the final three months of 2012 from a year earlier, the first pickup in two years. The pace may accelerate to 8.2 percent in the three months through March, according to the median estimate of 23 analysts surveyed by Bloomberg News in February. Nomura’s Zhang predicts expansion of gross domestic product will ease to 7.3 percent in the second half.

Purchasing managers indexes released over the past week indicate the economy’s recovery from a seven-quarter slowdown may have peaked.

A services industries gauge for February fell to 54.5 from 56.2 the previous month, the slowest expansion since September, according to a report today from the National Bureau of Statistics and China Federation of Logistics and Purchasing.

The federation’s manufacturing PMI released March 1 fell to 50.1, the weakest level in five months, while a separate gauge from HSBC Holdings Plc and Markit Economics dropped to a four-month low of 50.4. Readings above 50 indicate expansion while those below that number signal a contraction.

Property Curbs

Moderating inflation is “good news for growth,” Song told a forum. He estimated first-quarter economic expansion will accelerate to 8.3 percent “mainly because the comparative base in the first quarter of last year is very low.” The property tightening measures were announced too late to affect expansion for the period, he said.

GDP climbed 8.1 percent in the first three months of 2012 from a year earlier, down from 9.7 percent in the first quarter of 2011, according to previously released data from the National Bureau of Statistics.

The nation must be alert to changes in price-gain expectations and to imported inflation, the central bank said in a quarterly monetary policy report released Feb. 6. An economic recovery and expansion in demand may pass through to the consumer-price index in a “relatively fast manner,” and monetary easing in major developed economies may push up commodity prices, the central bank said.

Consumer inflation eased to 2 percent in January from a year earlier after a 2.5 percent increase the previous month, government data show. UBS AG estimated February’s rate was 3.3 percent while Mizuho Securities Asia Ltd. forecast 3 percent, as the Lunar New Year holiday pushed up food prices, according to reports last week.

— With assistance by Xin Zhou

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