Bankers see policy easing ahead as economy cools

An increasing number of bankers expect Beijing to loosen monetary policy in the next quarter to counter the economic slowdown while more consumers anticipate higher prices, central bank surveys show.

Some 32.4 per cent of the 3,000 bankers surveyed by the People's Bank of China said they expected Beijing to further ease monetary policy in the third quarter, compared with only 6.7 per cent in the second.

More interest rate cuts and higher bank lending are widely expected as the economy cools amid the ongoing debt crisis in Europe and as inflation eases, the latter giving policymakers the leeway to make changes.

With external demand still sluggish, growth cooled to 8.1 per cent in the first quarter. Inflation slowed last month to 3 per cent from 6.5 per cent last summer, allowing the central bank to cut interest rates this month for the first time since 2008.

'The downward economic trend in April and May is pretty obvious,' Commerce Minister Chen Deming (pictured) said in Los Cabos, Mexico, yesterday. 'I personally think the June situation is turning for the better.'

But bankers, business owners and mainland households do not seem to share Chen's optimism in the PBOC's quarterly surveys released yesterday. The surveys show bankers and entrepreneurs are losing confidence in the economy, while households are anticipating higher consumer prices, lower income and less job security down the road.

The macroeconomic confidence index slid by 6.6 percentage points to 58.4 per cent for bankers over the second quarter, while that for business owners was down 2.7 points to 67.5 per cent. Around 35.6 per cent of 20,000 households said they expected prices to rise in the next quarter, 4.2 percentage points higher than in the previous survey.

The central government has fast-tracked approvals of construction projects to boost investment and encouraged banks to lend.

An index measuring loan approvals hit 47.8 per cent in the second quarter, the highest reading since 2010. However, an index measuring overall loan demand fell to the lowest since at least 2009.

Chen said the central government had taken 'pre-emptive measures to boost consumption' so that 'domestic markets can help offset some of the impact from global trade'.

The central bank said its surveys found that 19.3 per cent of the polled households preferred to spend more, 33.5 per cent wanted to invest, while 47.2 per cent were keen to save.

About 15.1 per cent of the households surveyed said they planned to buy cars in the next three months, the highest since the survey started in 1999. And 26.2 per cent said they would buy household appliances or furniture. Nearly 16 per cent said they planned to buy property, 1.6 percentage points higher than a quarter ago.

Peng Wensheng, an economist at China International Capital Corp, said the mainland economy is 'in a complex process of bottoming out'.

Growth may turn around soon on policy support, but a strong recovery is unlikely as demand stimulus policies are constrained by factors including the unwinding property bubble, Peng said. He expected two more interest rate cuts and two to three more reductions in the required reserve ratio this year, forecasting economic growth of 7.8 per cent.