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Amid the National People’s Congress, the People’s Bank of China (PBoC) held a press conference in which it said, “monetary policy will stay prudent and neutral in 2013,” according to Xinhua.China’s official inflation target had been set at 3.5 per cent, and the target for growth of broad money supply (M2) was being lowered to 13 per cent.
This month inflation reached a 10-month high of 3.2 per cent, driven by food prices. While analysts and the PBoC said this was largely because of the impact of the Lunar New Year holiday, they are keeping an eye on inflation.
PBOC Governor Zhou Xiaochuan said China should be on “high alert for inflation,” according to Xinhua. He said monetary policy should be influenced by inflation and not the price of assets like real estate. Zhou also said the high M2 is because of the nation’s high savings rate which impacts the financial sector because higher savings allow banks to lend more.
Bank of America’s Ting Lu wrote that Zhou seemed “more hawkish on monetary stance than before,” but that this could be “a consequence of being criticised by the public for carrying out overly loose monetary policy since late 2008.”
But the PBoC and the National Development and Reform Commission (NDRC), China’s influential planning agency in control of economic policies, have been at odds with one another, according to a Reuters report.
The NDRC is pushing hard for economic growth, which limits the central bank’s ability to influence monetary policy. And Wang Jun, senior economist at the China Centre for International Economic Exchanges (CCIEE) told Reuters that the focus will continue to be on “stabilizing growth” not “controlling inflation.” But it seems too early to say which way the decision will go.
“The central bank has gained more clout under the governorship of Zhou Xiaochuan, who has pursued a programme of market-based reforms. But its lack of policy independence means it needs cabinet approval to adjust benchmark interest rates or the value of the yuan.
“Its reforms though have allowed it to keep a reasonably tight rein on liquidity in the financial system – and the availability of funds banks have to lend – despite calls from China’s provinces for aggressive monetary easing to support growth.
“While those supporting economic growth have the upper hand, the policy debate could turn, the sources said.”
Meanwhile, Bloomberg is reporting that a survey of analysts showed that they expect China to loosen interest-rate controls this year and get rid of a cap on deposit rates.
China made a move to liberalize its deposit rate last year, which Société Générale analyst Wei Yao said at the time, was a bigger move than the interest rate cut that accompanied it. This is because higher deposit rates would give the Chinese bigger returns and help increase spending.
Zhou is expected to retain his title when government positions are announced on March 16, And he has said that the central bank’s policies will “remain stable and continuous” irrespective of who is assigned the position.
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