Ask The Policy To Move Towards &Nbsp In The Second Half Of The Year; Central Bank Action Or Fine Tuning.

In the first half of this year, China's economic recovery has been further consolidated, and the rapid rise in prices has become the most prominent contradiction in the economic operation. In the face of the continuing pressure of rising prices, the central bank has increased the deposit reserve rate six times, increased the benchmark interest rate for two times, and carried out the open market operation flexibly, enhanced exchange rate flexibility and set up a macro Prudential policy framework to tighten up the monetary conditions for price rise.

Till the middle of the year. Domestic inflation pressure has not slowed down significantly. The market generally forecasts that CPI growth will exceed 6% in June. On the other side of the economy, industrial production has dropped for 4 consecutive months. The problem of financing difficulties for SMEs has been put on the table, and economic growth has dropped.

Therefore, there is a worrying voice, one side is inflation, the other is the economic downturn. Will the macroeconomic risk of stagflation occur? Will this bring new variables to the next step in the choice of monetary policy?

The experts who invited long-term monetary policy in this round pointed out that the risk of stagflation is very small. Everbright Bank (601818, stock bar) chief macroeconomic analyst Sheng Hongqing pointed out that moderate reduction of economic growth rate is an important measure to control inflation. The appropriate slowdown in China's economic growth is the result of an active adjustment, rather than a passive hard landing by some agencies.

Zong Liang, deputy director of the strategic planning department of Bank of China (601988, stock bar) believes that in this sense, the direction of macro-control policy should not be changed, nor should the direction of monetary policy return to stability.

However, after all, the moderately tight monetary policy has been going on for some time. Taking into account the time lag of monetary policy and the affordability of the real economy, experts believe that monetary policy can pay more attention to flexibility in the second half of the year and make some fine adjustments to some policy instruments.

Wang Jianhui, deputy general manager of Southwest Securities (600369, stock bar) R & D center, believes that the current monetary policy needs to strike a balance between "maintaining stability" and restraining inflation. In the second half of this year, the frequency and intensity of quantitative tools and price tools will gradually decrease and the observation period will be longer.

Zong Liang believes that the second half of this year can raise interest rates 1-2 times in real time, and 1 times in July. We must make sure that the market is clear about the government's determination to firmly control inflation and has no hesitation. However, due to the fact that the loanable funds of banks are relatively tight, and the normal loan activities of some real economies have been affected to a certain extent, there is little room for monetary policy adjustment.

At the same time, some subtle changes have taken place in the international economic situation. Today, globalization also affects the formulation and implementation of domestic policies. Pan Xiangdong, chief economist of galaxy securities, pointed out that if the global economic recovery is blocked and the pressure of inflation is bigger and bigger, the trend of the future of the global economy will become more complicated. At the same time, it will also make China's regulatory policy more complicated. {page_break}

Policy fine-tuning possible increase

"Since the beginning of this year, domestic CPI and international crude oil prices have shown a more significant correlation. The performance is that the price fluctuation of last month will affect the price trend this month."

Shanghai Securities Journal: under the high inflation pressure, the central bank raised the deposit reserve rate six times in the first half of this year, raised interest rates two times, and strictly controlled the amount of credit. Combined with the trend of CPI and market liquidity in the second half of the year, how much space do you think the next stage of monetary policy tightening? There is a view that CPI will fall after June. Will there be a fine-tuning of monetary policy?

Wang Jianhui: the contraction of the current money supply began in March last year. At that time, the M2 growth rate dropped from 25.52% to 22.50%, and then the fluctuation slowed down to 15.1% for the first month. The period has been 14 months. It is estimated that the policy adjustment will take 2-3 months and the M2 growth rate needs to remain at 15%, so that the central bank's 16% year target of money supply control can be achieved. To ensure that M2 continues to decline steadily, the central bank should raise the reserve ratio 2-3 times, and then enter the observation period of the policy effect.

CPI may fall back in June. If other factors are ignored for the time being, the trend of domestic CPI and international crude oil prices will show a significant correlation this year. The performance is that the price fluctuation of last month will affect the price trend this month. In March, oil prices fell by 7% in anticipation of Japan's earthquake constrained economic growth, and CPI fell slightly in April. When oil prices rebounded sharply in April as demand rebounded, prices rose again in May. At the end of May, at the beginning of -6, oil prices fell again because of the European debt problem. This situation has made the central bank begin to fine tune the pace of policy regulation. Although the price level has not dropped, in the past 3 weeks, the rate hikes that were originally judged by experience did not appear, indicating that policymakers began to be cautious in coping with the current situation and more focused on future trends.

Sheng Hongqing: there is no sign of decline in the field of inflation. Eight major commodities in the CPI basket have been rising for two consecutive months. Moreover, the new factor of inflation this year will have greater pressure on the price situation next year. Inflation is likely to remain high in the second half of this year. We expect an average of 5% in the three quarter, an average of 4% in the fourth quarter and an average of 4.8% in the whole year. It is more difficult to control inflation at the beginning of the government's target of 4%.

In terms of market liquidity, due to the uneven distribution of funds, tight money, the liquidity precautionary motive of commercial banks and the policy of "cash being king", the capital market of the entire interbank market will continue to maintain a tight trend. The tight capital side is the need to control inflation, because 1/3 of the scale of social financing is determined by market interest rates, and the central bank has the motive to raise market interest rates to loan interest rates.

As a result, we believe that the tightening space for the next stage is still large. There will be about 2 -3 increases in the required reserve ratio. There will be room for 25BP-50BP to raise interest rates on the control rate, and the appreciation rate for the RMB against the US dollar will also be 2%-3%.

Some view that CPI reached a high point in June and then dropped. We believe that we can not look at the problem in a static way. CPI may decline a bit earlier than the last year due to the weakening of the tail factor, but the factor may be larger than that in the second half of the year. Monetary policy will continue to be tight and will not be relaxed. In May this year, many institutions assumed the theory of "hard landing of China's economy". They believed that monetary policy entered the wait-and-see period or relaxed. As a result, good growth data released in June and improved reserves were sent to them. The bond interest rate and swap interest rate increased by about 20BP.

Zong Liang: from the current situation, the effect of monetary policy is constantly emerging, especially the situation of excess liquidity has been alleviated. However, inflation will remain high in the second half of the year, due to the impact of extreme weather on agricultural production, high international commodity prices and global liquidity surplus. Due to the higher tail factor, the CPI growth in June will be even higher than that in May. In view of the fact that the caudate factor will not decrease significantly after August, it is expected that from the three quarter, the year-on-year inflation will begin to fall, and the four quarter is expected to slow down significantly. The annual inflation will reach 4.7%.

In this sense, the direction of macro-control policy should not be changed, nor should the direction of monetary policy return to a stable level. But at the same time, some policy tools can be fine-tuning. Therefore, we can raise interest rates 1-2 times in the second half of the year, and we can add 1 times in July. We must make sure that the market is clear about the government's determination to firmly control inflation and has no hesitation. However, due to the fact that the loanable funds of banks have been relatively tight, and the normal loan activities of some real economies have been affected to a certain extent, we believe that there is little room for monetary policy adjustment. The solution to the problem of excess liquidity in the whole society should be solved through issuing central bank bills, accelerating interest rate liberalization and RMB internationalization, rather than relying solely on the deposit reserve ratio and interest rate increase.

Pan Xiangdong: from the perspective of inflation, the upstream and downstream prices have deviated from the trend, which may indicate the peak of terminal consumer prices. The slowdown in domestic demand has shaken the foundation of the upstream price, and the producer price index and PPI have dropped for two consecutive months. CPI has slowed down, but it is still running at a high level. The trend of food prices still has a great impact on the operation of CPI. Pork, fresh eggs and aquatic products have replaced the fresh vegetables in the past to become CPI's last "topping" promoter. It is expected that it will reach its peak in June, up from around 6%, and the fall of CPI after the three quarter is a big probability event.

After the easing of price pressure, the tight monetary policy in the first half of the year will inevitably come to a fine tune and return to stability. To avoid the sharp drop in economic growth due to tight monetary policy. {page_break}

"Hard landing" is not credible.

"The appropriate slowdown in China's economic growth is the result of an active adjustment, rather than a passive hard landing" by some agencies.

Shanghai Securities Daily: a "side effect" of tightening monetary policy is highlighted by the shortage of funds in enterprises, especially small and medium-sized enterprises, which has aggravated the domestic economic downside risk to a certain extent. There is a worrying voice, one side is inflation, the other is the economic downturn. The macroeconomic risk of stagflation will bring new variables to policy choices. How will monetary policy face this dilemma?

Sheng Hongqing: at present, the problem of small and medium enterprises' capital shortage does exist, but we can not deduce the "stagflation" conclusion, because the kinetic energy of China's economic growth is still strong. The motives of corporate loans are strong, investment in fixed assets and investment in real estate are running at a high level, and demand for crude oil, electricity generation, passenger transport and freight transport are all growing rapidly. The whole macro-economy is still growing at a relatively fast and steady level. Moderate adjustment of economic growth rate is an important measure to control inflation. The appropriate slowdown in China's economic growth is the result of an active adjustment, rather than a passive hard landing by some agencies.

On the other hand, in the face of new problems of tight funds, the emphasis of monetary policy tools can be shifted appropriately, so that interest rate instruments can take the lead. Because small and medium-sized enterprises are mainly caused by tight credit control and tight reserves. In fact, the higher interest rate has little impact on small and medium-sized enterprises. Small and medium-sized enterprises are unable to borrow money without interest rate, and the rising cost of capital helps to transform enterprises. Of course, monetary policy should be grasped well, and a balance must be grasped between economic adjustment and deflation.

Zong Liang: Overall, although the economic growth rate may slow down in the next period of time, it will remain above 9%, and there will be no "hard landing" in the potential growth rate. The risk of stagflation is also very small. On the contrary, the appropriate slowdown of national economic growth is expected by macroeconomic policy. The lower growth rate will be more conducive to structural adjustment, energy saving and environmental protection, and conducive to promoting reform and long-term healthy development of the economy.

I think the next stage is to maintain the moderate flexibility of monetary policy and gradually improve it. Financing environment 。 Second, we must adhere to the basic direction of macroeconomic regulation and control, firmly control inflation and steadily push forward the transformation of economic structure.

Pan Xiangdong: by raising the reserve ratio, it will restrict the ability of banks to lend. Once the tightening policy has led to changes in the management of enterprises, banks will first consider their lending risks, and SMEs will bear the brunt. At the same time, because large and medium-sized state-owned enterprises have their natural advantages in obtaining bank loans, once the overall size of loans is reduced due to tight policies, then tightening is bound to be SMEs.

Because the efficiency of government investment is far lower than that of small and medium-sized enterprises operated by the market, this will lead to economic growth by way of government investment, which will inevitably lead to a relatively surplus of total funds in the whole society, which will easily lead to stagflation of the economy. monetary policy If we want to change this pattern, we need to break through the traditional regulation and control mode, and resolve the amount of money precipitated since 2009.

Wang Jianhui: Macro policy There will be some side effects, either leading to undercooling or pushing inflation, sometimes side-effects in the current period and sometimes delayed. However, it is still rare that a regulatory policy can both inflate inflation and suppress the economy. At present, the risk of stagflation is still very small.

At present, monetary policy needs to strike a balance between "maintaining stability" and restraining inflation. As a big manufacturing country, we need to maintain at least 13% growth rate of industrial added value, so we need to maintain M2 growth level of around 15-15.5%. If M2 maintains this level in the next 4-5 months, the inflationary pressure caused by liquidity will steadily drop. At the end of the year, CPI is expected to fall back to 3.6-3.9%. The central bank can delay this increase in interest rates until late July, and make a decision after 3-4 months' observation. This will help stabilize market expectations for capital costs and temporarily alleviate the debt and operational pressure of SMEs.

Policy tools multiple options

"In the second half of this year, monetary policy will be smaller, focusing on fine-tuning, and the use of deposit reserve and interest rate instruments will be less, and open market operations will be more widely used."

Shanghai Securities Daily: in terms of specific monetary policy tools, quantitative tools were used more frequently in the first half of the year. In the second half of the year, between the interest rate tools, quantitative tools and exchange rate instruments, what kind of tools do you think the central bank will prefer more?

Zong Liang: CPI inflation in May was 5.5% year-on-year, creating a new round of inflation. Taking into account the higher tail factor, CPI inflation will remain relatively high in June, and inflation pressure will remain high in the short term. Against this background, the central goal of monetary policy in the short term is still to control inflation. The basic rhythm of monetary policy in the first half of this year will not be significantly loosened. Excess liquidity promotes the price rise to a certain extent, and the central bank should take measures to control liquidity.

The reason why we prefer to use quantitative tools to regulate money supply is mainly due to the structural characteristics of liquidity. There are mainly two channels for liquidity or money supply: first, credit and two foreign exchange. It should be said that with the implementation of regulatory policies and the increase in bank capital pressure, credit has been controlled, but the foreign exchange non people's Bank of China can take the initiative to control. The first 5 months of this year increased foreign exchange more than 1 trillion and 800 billion yuan. In order to hedge the liquidity released by foreign exchange reserves, the central bank has increased the operation of quantitative control tools, with strong pertinence and better results. If the price policy is global, it will affect many aspects after adjustment. For specific liquidity, the effect is not enough. Besides, the low sensitivity of price means is also the reason in our market.

Therefore, in the second half of this year, the monetary policy will be smaller, focusing on fine-tuning, the use of deposit reserve and interest rate instruments will be less, and the open market business will be more widely used.

Pan Xiangdong: some people say that there are three axes to govern inflation: one interest rate increase, two required reserve ratio, and three credit collection. But these three means have drawbacks.

The disadvantages of raising interest rates are mainly reflected in two aspects: first, the 4 trillion investment in 2008; the local government is run by Gao Ganggan; at present, the local government revenue is reduced because of the real estate regulation; meanwhile, if the interest rate will increase the pressure of its debt repayment, if it breaks up, is it not another crisis? Second, interest rate increase will inevitably lead to further influx of international hot money into China, and will increase the pressure of appreciation and increase the reserve fund in the short term. {page_break}

But the money is basically a debt paying interest, and the future is to go. Secondly, the increase in the reserve ratio is frozen more often in the form of international hot money, which is more likely to exist in the form of demand, and the lending of our banks is more in the medium to long term. This increases the risk of mismatch of bank funds. Thirdly, the increase of reserve ratio will inevitably restrict the ability of banks to lend. Because the nature of banks is "to love the rich and the poor" and the large and medium-sized state-owned enterprises have their natural advantages in obtaining bank loans. Once the total size of loans is reduced due to the tightening policy, then the tightening will inevitably be small and medium-sized enterprises, and the structure of the whole economy will become more and more deformed. The disadvantages of the RRR are mainly reflected in three aspects: first, the risks of upward interest rate and the appreciation of the renminbi are concentrated on the banks, because the international hot money keeps coming in.

There is a dispute about inflation control through exchange rate. The premise that it can achieve inflation is to judge that inflation is caused by external input. However, we feel that the current inflation is mostly due to the excess liquidity in China. Then, the price of imported goods will be reduced through appreciation, but at the same time, the influx of international hot money will increase and domestic flows will become more and more widespread.

Wang Jianhui: compared with price type tools, quantitative tools are more targeted, and the effect is easier to simulate and check in advance. It is also easy to adjust dynamically to adapt to changes in the economic environment. The central bank can accurately grasp the deposit and loan situation of banks, joint-stock banks and city commercial banks in various countries. It can also have a general concept of the real economy's demand for funds. By adjusting the reserve ratio, we should add and subtract the existing funds in the pool, supplemented by the open market operation such as issuing central bank bills and treasury bonds repurchase, so as to smooth the fluctuation. The interest rate and exchange rate instruments play a more extensive role. The effect is not clear: for example, how much interest rate increases to the government financing platform, and how effective it is in private capital and even in the underground financial market. In addition, the price instruments involve more policy considerations. In a highly internationalized environment, the adjustment of interest rates and exchange rates has to consider policy feedback from other economies.

In the second half of the year, the central bank will still use more quantitative tools and use price tools prudently. Overall, the frequency and intensity of the two tools will gradually decrease and the observation period will be longer.

Sheng Hongqing: we feel that the importance of the three tools will not be reduced. In comparison, interest rate tools may even have to come to the front. First, interest rate is the most effective way to control inflation, while reserve against inflation can only be "scratch the wall". At present, the level of interest rate control is not very high. Negative loan interest rate is still aggravating the investment impulse of enterprises. Negative deposit interest rate is also increasing the investment of financial products on a large scale. According to statistics of Puyi wealth, in the first quarter of this year, the number of bank financial products was up to 3691, an increase of 107.7% over the same period last year, with a scale of about 4 trillion and 170 billion yuan, which is 103% of the total deposits in the same period. It has exceeded half the scale of the issuance of bank financial products in 2010. In accordance with the interest rate of financial products, the benchmark interest rate has been as high as 5%, which is 175BP higher than the 3.25% regulated deposit rate, which is equivalent to 7 interest rates increase. Not to mention that the private lending rate is generally 20%. Two is to adapt to the marketization of interest rate, and to push the control interest rate close to the market interest rate.

Global "sweep the snow before each door"

"In order to reduce the risk of over rapid economic downturn, the emphasis of regulation policy will gradually be biased towards" steady growth ".

Shanghai Securities Daily: at the time when the world economic recovery is still hindered, the global inflation expectations are also rising. For example, the US CPI rose 3.6% in May, a record high in three years. The 22 meeting of the fourth Federal Reserve interest rate meeting this year, as expected by the market, is the Fed's current quantitative easing policy and interest rate level. What do you think the impact of the world economic situation on China's monetary policy?

Pan Xiangdong: the global loose monetary environment will inevitably make domestic monetary policy more passive. "Mundell's three paradox" has revealed that the independence of China's monetary policy is bound to be impacted. If the global economic recovery is blocked and the pressure of inflation is bigger and bigger, it will make the future trend of the global economy more complicated. At the same time, it will also make China's regulatory policy more complicated.

Wang Jianhui: Although the overall global inflation expectations are higher, there is a significant "step difference" between developed countries and emerging economies. When the US and Europe are still trying to maintain a loose monetary environment to promote economic recovery, the BRICs have entered the policy tightening cycle more than a year ago to curb inflation. It is expected that the "sweeping snow" pattern will not change significantly during the year. In the near future, the adjustment of domestic policies will mainly focus on the needs of their own economic development.

If there is no interference from sudden events, the domestic inflation pressure will also ease with the steady closing of summer harvest and autumn harvest. It can be said that the battle against inflation has seen the dawn of stage victory. In order to reduce the risk of over rapid economic decline, the emphasis of regulation policy will gradually bias toward "steady growth".

Zong Liang: according to the latest figures, the US core consumer price index rose to its highest level in 5 years in May. It should be said that this increase is a bit exaggerated, but the core CPI year-on-year increase since October last year at the level of 0.6% hit the bottom all the way up is a fact. The Fed pays close attention to the core CPI as well as the unemployment rate and economic growth. The Federal Reserve will weigh the inflation targets in terms of policies to stimulate economic growth and maintain core CPI at 2%. At present, the industrial output of the United States is still sluggish (the increase in May is only 0.1%), and the unemployment rate has not declined significantly, and the recovery of the US economy is generally slow. Based on the current situation, individuals believe that the US monetary policy will remain basically the same in the short term. Neither is it eager to take QE3 further loosely, nor is it eager to tighten interest rates.

The European debt crisis will continue to beset the euro zone countries. The overall economic growth of the developed economies is slow, and monetary policy is tight even though the rate is small. The effect of inflation control in major emerging markets will gradually show up over time. Inflation is still at a high level, and economic growth has slowed down. Therefore, the impact of the world economic situation on China is mainly due to excess liquidity and inflation pressure, but the pressure has been reduced.

Sheng Hongqing: after the recovery from the global crisis to the normal growth stage, it is normal for some countries to have some callbacks and shocks. After China's economy has changed from export driven to domestic demand growth, the impact of external demand on China's growth will become weaker and weaker, and stable external demand will help stabilize international commodity prices, which will help China's import demand to meet its domestic needs. We can no longer look at the relationship between external demand and China's growth from an old perspective. In the growth of domestic demand, import plays a more important role. At present, inflation in the United States has been rising. During the year, "passive interest rate increase" has not been ruled out, and Europe has begun to raise interest rates. Recently, India, Brazil, Russia and South Korea in emerging economies continue to raise interest rates. Moreover, interest rate tools are the most effective means of optimizing resource allocation, rather than quantitative tools, in the domestic demand growth mode. Therefore, changes in external economies will help China further open interest rate space.