Economists
now see China’s central bank keeping its main interest rate on hold
until the fourth quarter, when policy makers will lower it to help
safeguard a stabilizing expansion.
The People’s Bank of China will hold its benchmark one-year
lending rate at a record low of 4.35 percent through the third quarter
before cutting it to 4.1 percent in the fourth quarter, economists said
in an April 15-20 survey by Bloomberg. That compares with projections in
the March survey for a reduction to 4.1 percent in the second quarter
and another decrease to 3.85 percent in the fourth quarter.
"Monetary policy has already done its job after last year’s
intensive easing," said Harrison Hu, chief Greater China economist at
Royal Bank of Scotland Plc in Singapore, who now expects rates on hold
all year versus earlier predicting a second-quarter cut. "The central
bank needs to save the bullets for more difficult times ahead. Fiscal
policy should take over and play a larger role this year in buttressing
the real economy."
The
world’s second-largest economy is showing new signs of stabilization
after a series of PBOC interest rate cuts and stronger fiscal stimulus
spurred a pickup in March. Still, improvement came with a buildup in
borrowing that’s pushed debt to 247 percent of the economy and surging
new credit issuance.
Economists raised their fourth-quarter growth estimate by
0.1 percentage point to 6.5 percent. Their projections for 6.6 percent
in the second quarter and 6.5 percent in the third quarter
were unchanged from the prior survey.
Data Friday showed 6.7 percent first-quarter growth,
matching forecasts for the slowest quarterly expansion since early 2009.
Other reports showed new credit, industrial output, fixed-asset
investment and retail sales picked up in March and beat analysts’
estimates.
Amid such improvement, the PBOC is signaling less of an
appetite for expanding stimulus. Research bureau chief economist Ma Jun
said in a media briefing this week that policy operations, while
observing the need to keep supporting growth, will also pay attention to
heading off macroeconomic risks, especially an over-expansion of
corporate leverage.
PBOC
Governor Zhou Xiaochuan said the economy had a good start to the year
and the fundamentals will remain sound in the long run, according to
statement on the PBOC website Saturday. He reiterated that China
will pursue prudent monetary policy in a flexible and moderate way while
keeping reasonable and ample liquidity.
"As economic reflation unfolds, monetary policy may
gradually move toward a more neutralized stance" and momentum for
monetary expansionary may moderate, China International Capital
Corp. economists Eva Yi and Liang Hong, who expect rates on hold all
year, wrote this week. "We continue to see the ‘green shoots’ of
cyclical recovery."
Goldman Sachs Group Inc. this week boosted its gross
domestic product forecast for China, with the 2016 gain now seen at 6.6
percent, up from 6.4 percent. UBS Group AG increased its 2016
forecast Friday to 6.6 percent from 6.2 percent. Deutsche Bank AG raised
its second-quarter growth forecast Friday to 7 percent, up from 6.8
percent.
Inflation also will firm up to a level closer to the 3
percent pace that policy makers target, according to the survey.
Consumer prices will rise 2 percent in the second quarter, compared with
a projected 1.7 percent increase in the prior poll. Producer price
declines, which have continued for four years, will narrow to 4.3
percent versus the earlier estimate for 4.8 percent, the survey showed.
The PBOC cut the lending rate six times starting in November
2014, and has held it at 4.35 percent since October. It’s also cut the
RRR to a five-year low of 17 percent from 20 percent early last year in
five reductions. The central bank will cut that to 15.5 percent by the
end of this year, according to Bloomberg’s survey.
Fiscal policy has recently supplemented monetary easing to
help boost growth. Spending surged 20.1 percent in March while revenue
only rose 7.1 percent, data showed Friday.
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