China's monetary policy is expected to be looser in 2016, Peng Wensheng, managing director, global chief economist and head of research at CITIC Securities, said on Monday while giving a speech on Chinese economy at The Year Ahead 2016 Summit held by Bloomberg Busienssweek/China.
Peng said China is currently in the early stage of the second half of a financial cycle, an adjustment period of bitter deleverage. Therefore, China's monetary policy is expected to loosen further in 2016. In the meantime, structural factors resulted in sluggish demand and saving glut. The best way to consume the saving glut is to ease the monetary policy further and cut the market interest rate to a low enough level so that private investment could be stimulated.
The other choice is the supply-side reform, which is to loosen control and to increase efficiency and return of capital, so as to push up the equilibrium rate of interest and increase investment demand, said Peng. With regard to RMB interest rate, Peng reckons that greater fiscal expansion will provide stronger support to economic growth in the short run, and the pressure for RMB depreciation will be smaller.
Peng predicted that China will implement tight credit, loose monetary and ease fiscal policies and the gross domestic product may grow 6.5 percent year on year in 2016.
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