China's Market Interest Rate to Fall Smoothly Amid Tight Liquidity, Predicts Central Bank Advisor
Yicai Global
/SOURCE : Yicai
China's Market Interest Rate to Fall Smoothly Amid Tight Liquidity, Predicts Central Bank Advisor

(Yicai Global) June 28 -- China's market interest rate will fall smoothly and the market liquidity will be tight amid slowdown in the second half of this year, predicted a leading scholar of China's central bank. China is expected to implement a prudent and neutral monetary policy for the remainder of the year, but monetary policy might not be tighter, the scholar said.

"China's market interest rate will fall smoothly" has two major meanings. The interest rates will not rise continuously in the second half, but may keep flat or even drop slightly. Second, short-term interest rate fluctuations will be smaller compared with the first half, said Sheng Songcheng, advisor to the People's Bank of China (PBOC), and Qiao Yongyuan, chief strategist of Industrial Bank Co., in a joint article published on the WeChat public account "Yanghanguancha" today.

The market liquidity may still be in tight balance in the second half. However, it will not be substantially relaxed or tightened but eased somewhat, they pointed out. China's economy has not yet entered a new growth cycle and has not really found a new growth point, they suggested, but at the same time, some initial progress have been made in financial risk prevention, bubble suppression and deleverage.

The authors said it is difficult for the GDP growth in the second half of the year to reach 6.9 percent recorded in the first quarter. The current price level tends to decline; yuan's exchange rate stabilizes; and foreign exchange reserves have increased slightly, they noted.

China's market interest rate in the past six months has been above the interest rate hike by the Federal Reserve. The Fed's interest rate hike has limited impact on China. Even if the Fed increases interest rates in the second half, it does not mean that PBOC will follow the suit. PBOC would not shrink the balance sheet as the Fed did, the article added.

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Keywords: Monetary Policy, FED, Interest Rate, Central Bank, GDP, CPI, Deleverage