The Central Bank First Proposed Timely And Appropriate Pre Adjustment Of &Nbsp, Deposit Rate Or Down Payment.

Yesterday, the central bank issued the third quarter monetary policy implementation report, pointed out that continued to implement a prudent monetary policy, and for the first time put forward timely and appropriate pre fine-tuning.

In contrast to the two quarter's wording, the central bank did not mention "stabilizing the general price level as the primary task of macroeconomic regulation and control".

The fundamentals of price stability are not strong enough.

Under the combined action of a series of policies and measures, the momentum of excessive price rise has been initially curbed.

CPI has been down since August and dropped to 5.5% in October.

The central bank believes that since August, the CPI growth rate has shown signs of slowing down. At present, it is possible that the CPI increase will continue to fall.

If domestic and foreign economic growth is further slowing down, the price inflation may also accelerate.

However, the central bank still believes that the price trend in the future is still uncertain, and the basis for price stability is not strong enough.

"At present, prices are still at a high level, especially when the extremely loose monetary conditions in the world will continue, and domestic demand expands rapidly in the first two years. Inflation expectations are hard to change in the short term."

The central bank said.

In addition, the pressure of intrinsic expansion of the economy still exists, and price regulation can not be slackened. Macroeconomic policies need to continue to grasp the intensity and rhythm.

China's labor costs, services and non tradable goods prices may continue to rise and rise rigidly. The prices of resource products also need to be straightened out. These factors may exacerbate inflation expectations, and prices will have more sensitivity to the expansion of aggregate demand.

Song Qichao, an analyst with first pioneering securities, said that inflation is in a stage of rapid decline due to the continued tightening of the previous period, coupled with seasonal factors such as food prices. Next year, the inflation situation will obviously improve. China will bid farewell to the era of high inflation.

Subtle changes in monetary policy

With the gradual decline of CPI, the direction of monetary policy has also undergone subtle changes.

In the three quarter of the monetary policy report for the next stage of regulation thinking expression, this year's one or two quarter report focuses on "stabilizing the overall price level as the primary task of macroeconomic regulation and control" did not appear.

The central bank said yesterday that in order to speed up the pformation of the mode of economic development as the main line, we will continue to implement a prudent monetary policy, closely monitor the development and changes of the domestic and international economic and financial situation, grasp the intensity and rhythm of policies, adjust the timing according to the changes in the economic situation appropriately, consolidate the good momentum of steady and rapid economic development, maintain a stable overall price level, and strengthen systemic risk prevention.

Recently, the central bank has begun to fine tune monetary policy step by step.

The central bank's interest rate dropped three times in a row. In October, the ratio of credit to loans rose by 20%.

Galaxy Securities research report pointed out that the focus of regulatory policy began to appear some subtle changes -- from inflation control to economic growth, and monetary policy tool operation has entered a stage of foresight and prudent balance.

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Exergy analysis

Increase in deposit rate

The fall in inflation provides room for the government to strike a balance between inflation and economic growth.

In the near future, the central bank has also freed the tone signal, and experts have predicted that the central bank will cut the reserve requirement rate at the end of this year.

Liu Ligang, director of economic research at the Greater China region of Australia and New Zealand, believes that China is supposed to relax its monetary policy as soon as possible to ensure a soft landing of the economy.

He predicted that the central bank will soon cut down the deposit reserve ratio of depository financial institutions. The central economic work conference held at the end of this month or early next month will be the key time window.

Guotai Junan analysis report pointed out that the 1 year central bank interest rate lower than the same period of time deposit rate has released the interest rate reduction signal, is expected to see the next deposit rate reduction, followed by the decline in the benchmark interest rate.

At the end of the year, the probability of lowering the deposit rate has increased significantly, and there may be a rate cut after the 1 quarter of 2012.

But Qu Hongbin, chief economist of HSBC Greater China, believes that the current rate of reserve requirement reduction is too early, he said. But in the short term, the timing of a complete reversal of policy is not yet ripe. After all, the current inflation rate is still higher than 4% of the official target.

More importantly, the latest economic data show that China's economic growth rate remains at the level of 8.5%-9%, and the government has no need to completely relax monetary policy by cutting interest rates or lowering the deposit reserve ratio.

Nomura Securities pointed out that this year, the central bank will maintain the deposit reserve ratio and benchmark interest rate unchanged, but will make fine adjustments through the open market.

Dynamic and differential deposit reserve ratio regulation may become the first choice of the central bank.

The central bank also reported in yesterday's report that "continue to implement differential reserve dynamic adjustment measures".

Liu Ligang believes that in order to reduce the burden of small and medium-sized enterprises, the central bank will adopt a much larger reserve ratio for small and medium banks.

Correlation

The central bank says the money supply is moderate.

Since the beginning of this year, the growth rate of money supply M2 has declined rapidly, which has been callback from the high level of 19.7% at the end of last year to 13% at the end of 9 this year. The market is worried that the shrinking of money supply will affect economic growth.

However, the central bank said yesterday that it considered that the money supply caused by financial innovation was undervalued, and that the current monetary aggregates were basically compatible with the needs of the real economy.

"During the last period of steady monetary policy (1998-2007 years), the average growth rate of M2 was 15.9%. After adding factors such as financial innovation, the real money growth rate is only slightly lower than this average level."

The central bank said that if we take into account the formation of a relatively high level of money stock in the past two years to cope with the international financial crisis and the steady growth of China's economy, the total amount of money now is basically compatible with the needs of the real economy.

At present, financial instruments are constantly innovating, the investment channels of enterprises and residents are increasingly rich, the deposits of enterprises and residents are diverted, and the money supply is underestimated. The central bank is also gradually expanding the statistical scope of M2.

In the October M2 data just released, the central bank put the deposit and housing accumulation fund of non deposit financial institutions for the first time in the M2 statistical range.

In addition, the central bank also pointed out that the bank's off balance sheet financing and foreign financial institutions' deposits in the territory also affect the money supply to a certain extent.

Central bank data showed that the balance of off balance sheet financial products of commercial banks was 3 trillion and 300 billion yuan at the end of 9, an increase of 927 billion 500 million yuan over the beginning of the year, an increase of 45.7% over the same period last year.

Analysts pointed out that this means that the central bank next step may be the bank's off balance sheet financing funds, offshore financial institutions and other institutions in the domestic deposits data gradually incorporated into the M2.

The global economy faces three risks

The central bank's report yesterday pointed out that the European debt crisis, the political stalemate and deteriorating financial situation in the United States and the long and loose monetary policy of the developed economies will be the main risks facing the global economy in the future.

The central bank believes that the euro zone sovereign debt problem causes financial markets to continue unrest. If the crisis spreads further to the core countries, it may trigger global systemic risks. At present, the euro area is discussing with the international institutions such as IMF how to accelerate the implementation of the rescue plan. If the rescue and treatment of the crisis can achieve the effect of market recognition, it will help to boost confidence and promote the global economic recovery.

In addition to the European debt crisis, the political stalemate in the US fiscal consolidation, the continued weak housing market and deteriorating financial conditions also pose risks to the global economy. The current situation may continue to inhibit the recovery of the United States and thus affect the global economy.

In addition, the major developed economies will maintain a loose monetary policy over a longer period of time, which may exacerbate cross-border capital disorder and financial market turbulence and affect global financial stability.

Against this background, the policy making of emerging economies is more difficult.

The central bank said that although commodity prices have stabilized recently, inflation in major emerging economies is likely to remain high because of stronger demand.

On the one hand, emerging economies want to raise interest rates to curb inflation. On the other hand, as interest rates in developed economies are generally low, interest rate increases may attract more hot money inflows.