Adjustment of the rate of adjustment of the deposit can appear inflection point

The origin of the topic May 1, 2010, China's Logistics and Purchasing association issued a April China manufacturing Purchasing Managers Index (PMI) was 55.7%, up 0.6% from last month, has lasted 14 months to maintain more than 50%. One day later, the People's Bank of China unexpectedly announced a 0.5% per cent reserve requirement for deposit-type financial institutions since 10th.　　After the adjustment, the deposit reserve ratio of 17%, from the peak of the history of 17.5% only a step away. Market participants believe that the increase in reserve requirement ratio shows the central government's austerity intentions clear, the actual impact is not big. But it is clear that banks can be used for loans and businesses can be used to invest less money, in the context of the control of the property market frequently, the effect of the tightening of the regulation of monetary effect?　　We specifically invited three experts to interpret the central bank's moves in depth. The situation forced the central bank to NBD: whether from the first quarter of CPI, fixed-vote data, or the newly released April PMI, the economy from heat to overheating trend is obvious.　　Under this background, what is the significance of the central bank raising reserve requirement ratio for the third time of the year? Liu Yuhui: It is a situation that the central bank has been using policy tools. The central bank has been paying close attention to inflationary expectations, but the volume of credit raids at the start of the year, where CPI has hovered over the edge of overheating in recent months, and inflationary expectations are growing, all suggest that there is a risk of overheating. The PMI data, released 1st, reflect a stabilisation of the economy, partly to the point of easing monetary policy adjustment and the real economy.　　The central bank does not want to see a situation where liquidity cannot control and investment is growing too fast when asset bubbles are still inflating. Li Huiyong: The background of the central bank raising the reserve requirement ratio is the risk of a lot of liquidity and overheating caused by the superposition of multiple factors. The central bank's reliance on open market operations to withdraw funds has been weak: first, despite the March deficit, this is a temporary phenomenon, which will reverse the deficit and further push up inflation. Historical data show that the relationship between nominal exports and CPI is close, when exports grow faster, the CPI is also higher; second, the current increase in import prices is significantly higher than export prices, because the renminbi is actually pegged to the U.S. dollar, import price rise will be 100% to the domestic, and then pull the CPI ; Another factor is foreign exchange appropriation. Since the second half of 2009, the growth of foreign exchange accounts has been accelerated, in the context of the export hyper-expected growth and the expected appreciation of the renminbi, foreign exchange accounts are expected to continue to rise.　　Recently, a large number of central votes will expire, the bank open market operation hedging funds are limited, the increase in reserve ratio can effectively reduce the bank can lend money.　　Xijun: This is the third time this year to raise the bank reserve requirement ratio, increase 0.5%, there are three aspects of consideration: first, the regulation of liquidity pressure, improve the rate of registration is to resolve some areas of price rise pressure and expected pressure. The second is to consider the speed of bank credit in the first quarter, if issued according to the first quarter of credit volume, 2010Credit will be well over 7.5 trillion of the estimated amount.　　Increasing the rate of registration can freeze the scale of 250 billion of commercial bank loans, in a sense, is to give commercial banks a signal-to control the total credit. Third, adjust the money supply. M2 's growth in the first quarter reached 25%, already high, with a normal figure of around 17%.　　A higher rate of registration could slow down the money supply, making economic growth more stable, without the pressure of a sustained rise in prices in some areas, and even rising inflation expectations.　　PMI shows overheating NBD: In other words, the central bank is raising the reserve requirement ratio in order to recover liquidity, to prevent the risk of future overheating, and to curb the stock market bubble is still second, then the adjustment for the current weak stock market have any effect? Li Huiyong: The market's sense of smell has always been sharp, in fact, last week, the market on the introduction of the policy has been expected, the central bank announced a rise in reserve ratio for a A-share, is short term bad out. Although the long-term risk of monetary policy has not been eliminated, but short-term policy risk has been reduced, coupled with the first quarter of listed companies continued to increase the profit, a a short-term rebound in the market can be supported.　　However, in the medium to long term, the subsequent tightening policy on a-share impact will continue to let A shares repeat the March shocks, the market will still fall into stalemate.　　NBD:PMI data has lasted for 14 months above 50%, is this the Chinese economy has been "steaming" evidence? Li Huiyong: From the PMI data, it is certain that China's economy has entered a new cycle of growth. With China's strong recovery and inflationary pressures clearly rising rapidly, a very strong economic growth is not a good thing, and the risk of overheating will exceed the risk of two dip.　　Traditionally, the two quarter was the peak of the investment boom, with demand booming that could lead to shortages in some of China's upstream sectors and higher raw material costs, which would add to inflationary pressures.　　NBD: The reserve ratio increases by 0.5% each time, freezes the fund approximately 300 billion, has already raised 3 times this year, whether can solve the economic overheating problem? Liu Yuhui: The main way to control credit is by raising the cost of borrowing to curb market demand, but now China's real economy is not yet back to the point where it can raise interest rates. In this case, the increase in reserve ratio is still very limited, and the banks have a lot of funds, deposits increase so fast, loans out and into deposits, this is not control.　　As a result, the reserve ratio was raised by 0.5% per cent, and the declaration was more significant and the actual strength was not great. Li Huiyong: As mentioned earlier, economic overheating is the result of multiple factors, which determines the need for multiple policy tools to be used at different stages. There are some factors that are rigid, such as a large number of projects already under construction in 2009 that will support high investment growth, even if the new projects are strictly controlled. Effective control of credit and recovery of liquidity is the first step in policy withdrawal, and if that is not done, it will not only be possible to iron out economic volatility and prevent rising inflation, including other control assetsThe policy role of bubbles will also be compromised. Interest rate adjustment is necessary NBD: At present, some people think that the increase in reserve ratio can ease the anxiety of raising interest rates, others think that macro-control has come to an inflection point, controlling overheating will become the main regulatory target, and the growth may become secondary.　　What is the point that the central bank may raise the reserve requirement ratio? Liu Yuhui: Monetary policy from loose to moderate, the transition between the various trade-offs. In the introduction of the policy, the number of tools can be first, including the appreciation of the renminbi and interest rate, such as price-oriented tools will be opened in succession. In terms of curbing inflation, the current "small-run" adjustment may not be sufficient, and interest rate policies are likely to remain necessary. Consider moving the exchange rate and leaving room for monetary policy maneuvers.　　While it is hard to predict the timing of the central bank's interest rate hike, the need to keep interest rates low as the economy recovers more steadily will weaken, and the central bank is bound to manage inflation expectations by raising interest rates and curb inflation. Li Huiyong: Although the central bank has not given up on the monetary tightening line, the further rise in inflationary pressures has a significant impact on policy, and the increase in reserve ratios and window guidance itself will soon become apparent enough. In my opinion, the reserve requirement ratio is only one step away from the historic peak of 17.5%, and the room for adjustment is limited. The government has little choice but to resort to interest rate hikes and some price controls. Second-quarter interest rate increase is the most necessary, expected to raise interest rate, range of 0.27%.　　In addition, the appreciation of the renminbi is conducive to imports, but also help promote export upgrades, the two quarter can consider starting to return to appreciation, the annual appreciation is expected to 3%~5%. Conclusion: From the analysis of experts can be seen, the central bank's third increase in reserve ratio is a further return of monetary policy to the normal, the market need not worry. This, in turn, is a reflection of the central bank's concern over current liquidity adequacy and, on the other hand, its intention to tighten management of inflationary expectations. In addition, if the policy level of the economic "false rise" concern will continue, then the rate hike and the renminbi appreciation of the "boots" should not be too far to fall. Thanks for the interpretation of several experts!