China unlikely to further tighten monetary policy

HONG KONG, Sept. 8 (Yonhap) -- China is unlikely to further tighten its monetary policy, a report said Thursday, as the global economy faces uncertainties.
To curb the country's persisting inflation, the central People's Bank of China (PBOC) has raised the benchmark interest rate three times this year while increasing the amount of money banks must keep in reserve six times.
"Externally, many advanced economies face rising risk of deceleration, or even falling back into recession. The debt contagion in Europe also shows no signs of abating, affecting both investors and consumer confidence," Bill Leung, senior economist at Hong Kong-based Hang Seng Bank, said in a report.
"These could bode badly for the mainland's export prospects, making it difficult for the mainland authorities to further tighten policies."
Leung, however, said the Chinese central bank will not start monetary easing soon as inflation would stay at elevated levels.
He explained inflation might have peaked in July due to lower food prices, but domestically generated cost pressures arising from higher wages and rentals are still high.
"Against such a background, the PBOC is likely to maintain interest rates and the reserve requirement ratios for banks at current levels," he said.
"However, the central bank could still fine-tune policies, like its recent move to include margin deposits to reserves requirement calculations."
The Chinese central bank added this month certain kinds of margin deposits for reserve requirement, including acceptances, letters of credit and letters of guarantee, signaling its intentions to maintain a relatively tight monetary policy.
It was estimated that the new requirement would be equivalent to raising banks' required reserve ratio (RRR) by about 0.6 to 1.3 percentage points.
The RRR in China is currently 21.5 percent for bigger banks and 19.5 percent for smaller ones.