Chinese economy to meet growth target of 6.5 - 7 pct this year, PBoC unlikely to change policy rates in coming months

The economic transition of China towards a consumer-and services-oriented economy continues, while, the industrial sector and investment are losing their importance as the drivers of the Chinese economic growth, noted Scotiabank in a research note. The Chinese government is concentrating on supply-side reforms to lower excess industrial capacity; but it is simultaneously intervening to make the rebalancing as slow as possible to keep economic and social stability and to ease the risk of disruptive market volatility.

Authorities’ desire to bolster the real GDP gains is seen in a quick increase in credit. The Chinese economy’s near-term prospects have stabilized due to loose credit policies. China is on the path to meet the government’s economic growth target of 6.5 percent to 7 percent this year, stated Scotiabank. In the first three quarters, the real GDP expanded 6.7 percent year-on-year. According to Scotiabank, the economic growth is expected to decelerate to 6 percent year-on-year by 2018.

The Chinese central bank has promised to keep a “prudent” monetary policy stance in the months ahead, continuing to fine-tune monetary conditions with targeted policy measures. The PBoC aims to keep sufficient liquidity and curtail asst bubbles given the increasing financial risks because of rising leverage. The central bank’s reserve requirement ratio has been maintained at 17 percent since March 2016, whereas the key interest rates were reduced in October 2015.

“We do not anticipate any changes to the policy rates over the coming months”, said Scotiabank.

China’s producer prices have returned to inflationary territory and the inflation outlook continues to be manageable. In October, China’s consumer prices accelerated 2.1 percent year-on-year. It is expected to hover a tad above 2 percent in the quarters ahead, noted Scotiabank.