Wen hints at more monetary easing

PUBLISHED : Monday, 21 May, 2012, 12:00am
UPDATED : Monday, 21 May, 2012, 12:00am
 

Premier Wen Jiabao said yesterday the country would step up efforts to maintain stable economic growth, in a statement that many read as a signal for imminent monetary easing.

During a fact-finding trip to Wuhan, in Hubei province, over the weekend, Wen said macroeconomic controls should be 'improved and fine-tuned' in line with the latest economic situation and problems, if any, Xinhua reported.

The central government should 'properly handle' the relationship between maintaining growth, reforming economic structures and managing consumer price inflation, he said.

'We should continue to implement a proactive fiscal policy and a prudent monetary policy,' Wen said. 'More priority should be given to maintaining stable economic growth.'

Many economists said Wen's remarks showed policymakers were worried about the economic slowdown, which has already spilled into the second quarter from the first.

They pointed out that the recent escalation in the euro-zone debt crisis had added to the woes already caused by export declines and a softening of domestic consumption.

They said last month's weaker-than-expected data across the board, including in trade, industrial production and new lending, triggered fears of a further slowdown between April and June, and prompted some to downgrade their full-year economic growth forecast.

'His latest speech is straightforward, delivering a message that we are facing a slowdown in growth,' Haitong International Securities chief economist Hu Yifan said. 'Wen's call is for a more preemptive approach than the reactive approach at present.'

As part of his tour, Wen met some steel, car and electronics manufacturers, who complained about orders overseas and soaring costs at home in recent months. He told them the central government would press ahead with structural tax reforms to ease their financial burden while expanding credit financing for small companies. 'We need to have confidence in challenging times.'

Bank of America-Merrill Lynch economist Lu Ting said the question was what measures Beijing would take in response to slower growth.

'Policymakers are concerned about the economic slowdown,' he said. 'We expect two to three rounds of cuts in reserve requirement ratio in the coming months, and also that the central government will approve more investment projects quicker, particularly in infrastructure.'

The latest and second cut this year in the reserve requirement ratio, which stipulates the amount banks must put aside when lending, took effect on Friday.

However, economists said it came too late to stem the slowdown from persisting into the second half.

Lu downgraded his forecast for economic growth in the second quarter to 7.6 per cent, from the 8.5 per cent predicted earlier. His full-year growth forecast is 8 per cent, down from 8.6 per cent. This compares with the central government's full-year target growth of 7.5 per cent.

Other brokerages such as Mizuho and Societe Generale have cut their forecast for both second-quarter and full-year economic growth.

Meanwhile, Beijing said it would speed up approvals of qualified foreign institutional investors (QFII) looking to buy into its domestic securities, as part of the capital market reform. The nation's foreign-exchange regulator said it had approved US$26 billion in QFII quotas for 138 qualified investors as of May 16.

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Wen hints at more monetary easing

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