Monetary Policy Is Still Loose.

China and the United States are global economy An important driving force for growth is a series of data showing that the downside of the two major economies in the middle of the year has come to an end, easing fears that the global economic weakness will intensify.

Policy linkage also provides more monetary accommodation in the two largest economies. This move is affecting other regions: policymakers in emerging markets are suspending the process of normalizing interest rates, trying to protect their trade from global economic slowdown and the dollar. RMB The blow of depreciation. The resulting looser monetary policy will help offset the lower interest rate faced by the central bank in the developed economies.

China and the United States have different positions in the economic cycle. The United States is recovering from deep recession, facing high unemployment and arduous fiscal adjustment tasks. China is at a mature stage of expansion and has increased its capacity utilization.

But the two one. Economies The growth has slowed down in the middle of this year, and has also affected other parts of the world. In China, the August data report shows that policy implications designed to ease lending and public sector investment are fading away. Production data show that the inventory adjustment has ended and retail sales growth is still strong. Therefore, even if the export growth is slowing down in the middle of the year, the GDP growth in the next few quarters is likely to be stable around 8%.

The US situation is different, and its economic stabilization should be temporary. However, the probability of a double bottom recession is still a small probability event. Recent surveys show that manufacturing recession will continue. Moreover, a new round of deflation will emerge in early 2011 after the fiscal tightening in mid - year. The key question now is whether the increase of economic weakness and uncertainty will make enterprises deviate from the defensive trend, and enterprises are the core power of economic growth. In this regard, the decline in the number of applications for unemployment benefits in the United States in September is quite encouraging.

It is expected that China and the United States will resume the trend of growth above the trend level next year, but the current weak stage has led to the direction of policy. As the core inflation rate of the United States has been below 1% and the unemployment rate is still close to 10%, the Fed is increasingly concerned about its dual mission (maintaining price stability and promoting employment). The Fed has issued a signal that it will continue to maintain policy interest rates close to zero for a long time.

Although the US Federal Open Market Committee (FOMC) meeting did not buy assets as expected in the market, it declared for the first time that the basic inflation level is below its intended target. It is expected that the Federal Reserve will resume its large-scale acquisition of treasury bonds, which is likely to be made at its November meeting.

In order to make the US monetary policy effective, the Fed must let families and enterprises believe that the economy is moving towards the established goal. The decline in market indicators of inflation expectations in the past few months has also become a worrying issue, because it shows that confidence in the Fed's ultimate success is weakening.

Looking at China again, the latest macro data show that the deceleration of China's economy in the middle of the year has basically ended, and GDP growth is expected to stabilize between 7.5%-8.1% in the second half of 2010.

However, the direction of macro policy in financial market is still unclear. This summer, influenced by worries about the spread of the sovereign debt crisis in Europe, some investors began to anticipate that the normalization of monetary policy implemented so far this year will be reversed. But recently, because of the tough statements issued by the Chinese government in strict regulation and control of the real estate market and the renewed concern about the market's renewed interest rate increase in the short term, investors are full of doubts about the policy trend.

Under the background of uncertain economic environment, Chinese policymakers are adopting "flexible" policy methods to solve the existing macro challenges. It can be expected that the overall policy of the government will not change significantly, especially the special austerity measures implemented in the year (including real estate regulation policies).

China's real deposit rate has been negative for seven consecutive months, and the central bank is likely to raise interest rates by 27 basis points in the four quarter to curb inflation expectations. At the same time, because major policymakers are still unable to determine the global growth prospects and the lagging impact of earlier tightening measures, there is no agreement on interest rate adjustments.

We note that since the people's Bank of China pledged to increase the flexibility of the RMB exchange rate in June, the trade weighted exchange rate of RMB has declined. Despite the pressure from Europe and the United States, the possibility that the renminbi will rise faster against the US dollar in the short term will still be constrained by the uncertainty of Chinese policymakers about the uncertainty of external demand and its impact on exports.

A marked slowdown in the production price index in recent months shows that potential non food inflation pressures are largely under control. We expect that consumer price index inflation will peaked in the three quarter (the annual rate), and will gradually stabilize at 3% near the beginning of next year. This also provides a basis for our prediction of the 27 increase in the fourth quarter of this year.

Since January this year, the central bank has tightened the liquidity between banks through open market operations and the three increase in the deposit reserve ratio. But in recent months, the central bank's open market operation has been more flexible. The central bank injected funds into the market from May to July and returned to the market in August. Therefore, the overall monetary environment is generally loose. The government is still debating whether more anti cyclical regulations should be introduced to banks. The trend of slowing loan growth appears to have bottomed out in May (seasonally adjusted annual growth of 14.1% in three months).