2020-07-24

China Expected to Tighten Monetary Policy in 2H

China will decelerate its credit growth in the second half of 2020 with the economy stabilized and nascent speculative fever threatening bubbles in housing and stocks.

21st Century: 货币政策已回归常态 下半年或是稳货币、紧信用组合
As usual, the Political Bureau of the CPC Central Committee will hold a meeting in late July to analyze and study the economic situation and make arrangements for economic work in the second half of the year. Among them, the market is highly concerned about whether there will be fine-tuning of monetary policy.

Wind data shows that the recent DR007 interest rate has remained at around 2.2%, which is roughly the same as the central bank's policy interest rate, and has risen by 70BP compared to the average level between March and May. This means that monetary policy has returned to a normalized level from the ultra-loose state during the response to the epidemic.

Monetary policy operations in the second half of the year are faced with a balance between pros and cons. On the one hand, the macroeconomic status quo requires monetary policy to relax support, and at the same time, lower inflation makes monetary policy loose. On the other hand, restraining idling arbitrage, the surge in leverage, and the pressure of rising housing prices require appropriate tightening of monetary policy.

The reporter learned that the reason for the central bank's withdrawal of the ultra-loose monetary policy is the gradual stabilization of the macro economy. Looking forward, the probability of further tightening of monetary policy in the second half of the year is not high, and it is still on the loose channel. However, there are still differences in the market as to how far the central bank cuts the RRR and interest rates.

"The period of the most loose monetary policy during the year has passed. At present, the real economy is showing signs of marginal improvement. The operation of monetary policy should be adapted to the situation of the real economy. Therefore, monetary policy will enter an observation period. The operation of quasi-cutting interest rates will be more cautious." Wu Chaoming, vice president of the Institute of Finance and Information, told a reporter from 21st Century Business Herald.

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