JPMorgan Chase: Tighter monetary policy or concentrated in the coming months

After the central bank announced a 0.5% increase in reserve requirements since November 29, JPMorgan report said that if headline inflation data remained high and the economy was at risk of overheating by the start of next year, the increase in reserve requirements,　　Policy initiatives, such as interest rate hikes and appreciation, are likely to be concentrated in the coming months. JPMorgan said China would continue its "small steps" and "multi-line" approach to monetary policy.　　Policymakers have been focused on managing excess liquidity through tight controls on capital inflows, the rise and reversal of reserve requirements and the tightening of the supply of credit, particularly in the property sector. "We believe that in the next few quarters the government will continue to promote the normalization of monetary policy as a response to inflationary pressures and the constant rebound in domestic demand policy, including two increase in reserve requirements, three interest rate hikes and further appreciation of the renminbi." "The report says a possible policy for the government to deal with inflationary pressures is to take a" before-heavy "approach to appreciating the renminbi. JPMorgan forecasts that the renminbi/dollar exchange rate will rise by 5% in 2011, in a gradual/linear fashion. However, if headline inflation remains high, the rise may be expected to occur early in the first half of 2011.　　In addition, JPMorgan forecast that the next rate hike will be in the first quarter of 2011, and if the November inflation data remains high, the rate hike may be ahead of December 2010. In response to the hike, the report said the Chinese authorities were hesitant to raise interest rates in the short term to control inflation, especially food inflation.　　The government is likely to take financial subsidies for low-income urban households and release certain government stockpiles of food to help curb price increases for basic consumer goods. In addition, the report suggests that concerns about China's inflation and tightening trends in the financial markets could seriously affect China's demand for commodities. While the pace of growth in China's real estate sector is likely to slow in 2011, there may be concerns of oversupply in the sector next year, but there are enough infrastructure projects to ensure that the fundamentals of China's commodity demand remain strong next year.　　The report remains a forecast for China's real GDP growth of 10% in 2010 and 9% per cent in 2011. (Stock market Weekly feeds)