Wu Qing: Speed And Intensity Of Monetary Policy Fine-Tuning In 2012

Observe the year of dragon

Data released by the National Bureau of statistics last year showed that the total consumer price level (CPI) increased by 5.4% over the previous year in 2011, which is 1.4 percentage points higher than the target 4% set at the beginning of the year.

However, the consumer price level rose 4.1% in December last year, down 1.3 percentage points from the annual average.

The consumer price index has stopped rising since the end of the three quarter of 2011.

Meanwhile, the producer price index (PPI) has been decreasing month by month since last year, and it continued to decline by 0.3% in December last year.

As this round of inflation is pmitted from upstream to downstream, the reduction of the ex factory price index indicates that the consumer price index will further decrease.

In addition, the larger negative impact of excessive monetary policy is still continuing.

In 2011, the broad money volume (M2) grew by only 13.6%, much lower than that of 19.7% in 2010 and 27.68% in 2009 (2009 is an excessively relaxed year, not comparable). This is the lowest growth rate of M2 since the new century, while the narrow sense of money (M1) has increased by only 7.9%, the second low growth rate since the new century, which is now only higher than the growth rate in 2009 January.

Thus, M1 is expected to create the lowest growth rate since the new century in the next two or three months.

Accordingly, we can see the following macroeconomic picture in 2012:

First, the rate of economic growth will further decline, and may accelerate the decline.

At present, most agencies predict that China's economic growth rate is still over 8% in 2012, but at the same time, it is also pointed out that the possibility of downward adjustment in the next two quarters is greater than the upward adjustment.

This is mainly because the process and speed of China's economic growth mode change is not enough, and its dependence on exports is still relatively large.

Second, China's economy will witness the adverse consequences of over tightening monetary policy in 2012.

The current consumer price index is close to zero, and the further decline in the consumer price index means that the CPI ring index may be negative again in a few months.

By the second half of 2012, CPI growth may also be negative.

This is typical.

Third, in the short term, the road to RMB appreciation is near the end.

According to the calculation by the bank for International Settlements (BIS), the nominal effective exchange rate of RMB increased by 21.4% from 2005 to November 2011, and the real effective exchange rate increased by 31.6%.

Since the second half of 2011, the exchange rate of RMB on the overseas non deliverable forward market (NDF) is lower than the RMB spot exchange rate established by the people's Bank of China.

If the market decides the RMB exchange rate, the effective exchange rate of the renminbi will be more likely to depreciate in 2012 than the appreciation.

Fourthly, the future trend of RMB exchange rate becomes more complicated, which will increase the uncertainty of money market and further exacerbate cross-border capital flows.

With the weakening of RMB appreciation expectations, if the central bank's central parity of RMB yuan continues to appreciate, the net outflow of pnational capital will become even more serious.

In the first three quarters of 2011, the people's Bank's foreign exchange account grew by more than 900 billion yuan per quarter, but in the last three months it was reduced by 25 billion yuan, 28 billion yuan and 100 billion yuan respectively.

If the above prediction is established, the following measures should be taken in the current monetary policy:

On the one hand, the people's Bank of China should increase the speed and intensity of the current monetary policy's fine-tuning, not only to maintain growth, but also to "reverse deflation".

Last year, over tightening monetary policy finally fined in the fourth quarter of last year, but the speed and intensity of fine-tuning are not enough.

It is the best "preconditioning" to take action ahead of time before the side effects of over tightening appear.

If the deposit reserve ratio is adjusted by 0.5 percentage points each time, it will probably need to adjust 3 -4 times in the first quarter of 2012.

On the other hand, the people's Bank of China should stop the renminbi's strategy of continuous one-way appreciation and let the RMB depreciate moderately.

The biggest difficulty in stopping the appreciation is to resist the pressure from the US. Fortunately, the devaluation of the RMB in overseas markets can be used to resist the political pressure of the United States.

The way to use the expectation of depreciation is to make the RMB exchange rate more market-oriented.

If the market lets the renminbi depreciate, American politicians can no longer accuse the Chinese government of manipulating the exchange rate.

At present, the gradual way of exchange rate marketization is to expand the floating range of RMB exchange rate and reduce the intervention of exchange rate.

In the long run, as long as we follow the path of marketization, there is little difference between gradual and shock.