VARIOUS Chinese newspapers offered starkly different views on the outlook for monetary policy today, highlighting confusion prevailing in the markets over the authorities' next likely step.
China is at a crucial inflection point, with inflation likely having hit new highs in the past month, even as other indicators are pointing to a slowdown in growth. Some voices in China are now calling for a relaxation of monetary policy, while others are arguing for further tightening.
How this plays out is a key issue for financial markets, which are looking to China to help sustain a bumpy global recovery. Concerns about a slowdown in China, the world's second-largest economy, have added uncertainty to the outlook, which has already been clouded by Europe's sovereign debt crisis.
The People's Bank of China said in a statement last night that "inflation pressures are still high," while the economy continues to grow at a steady and relatively fast pace. The brief statement was issued after a quarterly meeting of the central bank's monetary policy committee.
Today, two local papers interpreted the PBOC's statement to mean that a hike in interest rates could be imminent.
The Economic Information Daily, a newspaper backed by the Xinhua News Agency, said the PBOC statement has raised market expectations for a rate hike this weeke
nd.
The report didn't give any further analysis or evidence on the possible timing of such a move. China's central bank has frequently made such policy moves on holidays and weekends.
The state-run China Securities Journal said the statement sent a message that the authorities aren't optimistic about inflation, and the central bank may raise interest rates again this month.
However, a central bank-backed paper argued in a commentary that the PBOC may "appropriately slow the pace of policy adjustments and lower the intensity of policy".
The possible adjustment of policy comes as there has been a clear slowdown in global growth and increasing uncertainties over the world economy, a reporter for the Financial News wrote in the commentary.
Though it appeared in a newspaper backed by the PBOC, the commentary isn't necessarily a reflection of the central bank's official views.
In a separate commentary today, government economist Ba Shusong suggested a third possible option for monetary policy. The central bank could raise interest rates, while at the same time cut the required reserve ratio, he wrote in the Economic Information Daily.
Mr Ba, deputy director-general of the Financial Research Department of the State Council's Development Research Centre, said lowering the amount of deposits that banks must hold in reserve would help improve the credit environment for small- and medium-sized companies.
The difficulty in accessing credit for such companies is frequently cited by those arguing for a looser policy stance.
