China needs tightening policies to avert overheating: ADB

China should consider policies to tighten its monetary policy to prevent the world's third-largest economy from overheating as growth is likely surge this year, the Asian Development Bank said on Friday.

With monetary conditions looking unduly loose, there is a need for tightening with focus on reining in lending and raising actual cost of funds.

China took an unexpected step towards tightening on Tuesday by increasing banks' reserve requirements, although market players say it would only marginally succeed in curbing inflows of speculative capital.

"No country has responded as effectively and as resolutely to the crisis as China has. With the global economy recovering and with China's growth now surging, there may be a need for change in policy settings," according to a study commissioned by the Manila-based ADB and completed before the reserve hike.

The ADB estimates developing Asia will grow 6.6% this year after expanding 4.5% in 2009, with China charging ahead with forecast growth of 8.9%.

"The fact that the (Chinese) authorities have already begun a range of tightening measures reflects their growing concerns over possible asset bubbles and other distortions," the study said. It cited efforts by China to require big banks to raise their capital adequacy ratio to cut the risk of a rise in bad loans.

The study, titled "Impact and Policy Responses - People's Republic of China", also said the yuan is probably undervalued and should be allowed to appreciate gradually.

"A shift to a gradual appreciation of the exchange rate anchored in a new exchange rate regime such as the 'basket-band-crawl' regime adopted by countries such as Singapore might be more appropriate."

Source: Reuters
Courtesy moneycontrol.com

Also check

NIFTY TIPS

INTRADAY STOCK TIPS

INTRADAY NIFTY TIPS

POSITIONAL NIFTY OPTION TIPS

NIFTY 300

ADB says too early to end stimulus; no China bubble

The head of the Asian Development Bank warned it was too early for Asian countries to end stimulus policies started during the financial crisis and said he saw no big risk of price bubbles in China.

Haruhiko Kuroda said on Thursday that policymakers still needed to restore demand and stabilise financial systems to support the economic recovery.

China's surprise move on Tuesday to raise bank reserve requirements was "quite appropriate" even if there were no big asset price risk in the world's third-biggest economy.

"While we believe developing Asia is leading the global economic recovery, it is still too early to relax vigorous efforts to restore demand and stabilise financial systems," Kuroda told a forum on the crisis.

He said the rebound in the world economy was fragile.

Asia is leading the recovery but growth is unlikely to lead to runaway inflation, Kuroda said.

"The timing of exit from policy stimulus needs to be tailored to countries' individual situations, taking into account inflation risks where output gaps are turning positive, as well as debt levels," Kuroda later told reporters.

Asian countries must boost internal demand to return to high growth rates and reduce poverty, with external demand likely to remain sluggish as advanced economies tread carefully back to pre-crisis growth levels, he said.

The ADB estimates developing Asia will grow 6.6% this year after a 4.5% expansion in 2009, with China charging ahead with 8.9% growth this year.

China rocked world financial markets with an increase in the amount that banks must set aside as reserves that was earlier than markets had expected. The move was likely prompted by concerns over a surge in inflation surge.

"Inflationary pressures have not been so much prominent in the Chinese economy at this moment. But in some cities, the real estate prices have risen sharply over the last several months and so the move by the Chinese central bank appeared to be quite appropriate," Kuroda said, adding the move was not expected to undermine the V-shaped recovery.

"The monetary authorities have already adjusted slightly to a less expansionary monetary stance quite appropriately, and also the bank credit has been well supervised."

Source: Reuters
Courtesy moneycontrol.com

Also check

NIFTY TIPS

INTRADAY STOCK TIPS

INTRADAY NIFTY TIPS

POSITIONAL NIFTY OPTION TIPS

NIFTY 300

China raises banks' reserve requirements

China's central bank on Tuesday said it was raising banks' reserve requirements by 0.5% points, effective January 18, in the clearest sign yet that it has begun to tighten monetary policy.

It was the first time that the People's Bank of China adjusted the amount of deposits that commercial banks must keep on reserve since it lowered the ratio in December 2008 as part of its loosening cycle at the time.

The hike in the reserve requirement ratio was sooner than many economists had anticipated and was interpreted as a pre-emptive move against inflation.

This first increase since June 2008 was meant to stabilise loan growth but keep overall policy pro-growth, a Chinese central bank official told Reuters. "Our monetary policy stance is still appropriately loose and the move is intended to use quantitative tools for flexible fine-tuning," an official at the People's Bank of China said.

So, what do experts make of this policy move?

Donald Straszheim, Senior Managing Director & Head of China Research, ISI Group, says, "I wouldn't really be negative about it, it is the right thing to do. China provided so much monetary stimulus in 2009, excessive by anyone's measure, that they need to start pulling it back. The economy is roaring ahead, it is time to start to do this, this is the first step in a transition to tighter policy."

David Gordon, Head of Research, Eurasia Group, too echoes Straszheim's view. "On the one hand, they are very worried about a slow global economic recovery. They are still committed to fully laying out a stimulus plan. But at the same time, they are also quite worried about asset bubbles building up and the potential for inflation. I think they are trying to balance continued stimulus with fine tuning and slowing down access to capital, making it harder to lend."

This, experts say, is a clear signal of what direction the RBI is likely to take in it's monetary policy this month end.

(With agency inputs)

Source: CNBC-TV18
Courtesy moneycontrol.com

Also check

NIFTY TIPS

INTRADAY STOCK TIPS

INTRADAY NIFTY TIPS

POSITIONAL NIFTY OPTION TIPS

NIFTY 300