The probable easy monetary policy in the Second Quarter
In recent years, the acceleration of interest rate liberalization and the booming development of internet finance have put forward new challenges for the currency management authority, requiring it not just to stabilize economic fluctuation through the monetary policy, but more importantly, they need it to give play to the roles as the lender of last resort and maintain the financial stability.
In order to maintain the financial stability, the central bank will also increase money supply in specific periods so as to supplement the liquidity, but it is entirely different with the meaning of monetary easing or policy shift in the conventional sense.
Under the background of the slow economic growth and the rising one-year deposit and lending rates, it might be rather hard to maintain the rather tight monetary policy in the second quarter. In the mean time, in order to maintain the stability of the financial system and prevent the systematic financial risks, the monetary policy will turn to be loose.
The central bank will comprehensively adopt the open market operation and the tools of SLO and SLF to adjust the market liquidity dynamically. Within the year, it is very possible for the authority to decrease the deposit reserve ratio. At present, the interest rate liberalization has made great progress, the necessity and possibility for the central bank to put a rate cut is rather low.
First, there is the further anabatic possibility of maturity mismatch for the financial institutions. Under the impact of wealth management products, the proportion of bank core deposit constantly drops; secondly, the slowing economic growth will exacerbate the risks of the real estate, LGIVs and industries with excess production capacity. Moreover, the phenomena of extending credit and borrowing for repaying may frequently appear;
Secondly, the fundamentals of currency market are not optimistic. The gradual opening up of capital account causes more fluctuations of RMB exchange rates, and the influences of foreign capital outflow and the fluctuation of funds outstanding for foreign exchange further magnify; finally, the debt ratio of enterprises in the real economy is rather high, and the enterprises lack the operational cash flow.
The trend of RMB exchange rates mainly depends on the two factors of the economic growth and the cross-border capital flow. As for the whole year, it is expected that RMB exchange rates display the trend of being low first and then being high later. With the further broadening of RMB exchange rate fluctuation range, the bi-directional fluctuation will increase, and will gradually approach the equilibrium level.
