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Economic figures for the third quarter indicate a further slowdown (4)

By Zhou Xiaoyan (Beijing Review)

08:18, October 22, 2012

However, some experts held a different opinion, suggesting any further loosening of monetary policies may lead to side effects, like a rebound in housing prices that the Central Government is trying to avoid. Also, China is facing the danger of imported inflation after a new round of quantitative easing (QE3) was rolled out in the United States.

Although the country's economy, especially its industrial sector, is faced with increasing deflationary pressure, Xu does not expect huge stimulus measures to be issued within the year. On the other hand, fine-tuning fiscal and monetary policies could be possible.

Alaistair Chan, an economist with Moody's Analytics, a division of Moody's Corp., agrees with Xu.

Mild inflation in September is unlikely to give the government much scope for further stimulus actions, said Chan.

Chan noted that inflation in housing and household goods has been resilient, and the likelihood of further interest rate and reserve ratio cuts has been diminished.

In order to buoy growth, the central bank has cut the reserve requirement ratio twice this year. It has also lowered the benchmark interest rates twice.

E Yongjian, a researcher with Bank of Communications, also said that it has become less necessary to lower the reserve requirement ratio or interest rates than it was during the rest of the year, as M2 growth expanded at a record speed in September and current inflation stands at a low level. M2, which measures cash in circulation and all deposits, rose 14.8 percent year on year in September, marking the highest level since July 2011, said the central bank on October 13.

"September's monetary data shows that credit and bond issues have already been relaxed to support economic growth," said Huang Yiping, chief economist for emerging Asia at the investment banking division of Barclays.

Huang said a further interest rate reduction in the last three months of this year has been constrained by concerns about a rebound in property prices.

Analysts say that the CPI was unlikely to see a significant rebound in the rest of the year, but China should be prepared for so-called "imported inflation" caused by the new round of QE3.

"QE3 will lift commodity prices. The price increases will be passed on to China because the country is a huge importer of commodities," said Zhuang Jian, senior economist at the Asian Development Bank, China Representative Office.

"If the rebound continues, we think policymakers are likely to lean more toward a 'wait-and-see' approach, especially in the absence of signs that employment is deteriorating," said Helen Qiao, a senior economist with the Morgan Stanley Asia Ltd.

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