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21 Feb, 2009 12:02
Rasanya nggak bisa lagi karena keadaan Jepang sudah luar biasa buruknya, cuma tinggal tunggu kapan YEN menemukan valuasinya yang sebenarnya : - GDP Jepang mengkerut -12,7% periode Oktober s/d Desember 2008 - Export kwartal lalu drop -13,6% -Tingkat pengangguran bakal melewati tingkat 5,4% (2002) -Suku Bunga BoJ sudah mentok dibawah 0,1% :-O , kok Yen tetap kuat aja ?????? Tinggal tunggu "satu" pemicu aja bagaimana suruh rakyat Jepang yang Gemar menabung walaupun cuma dikasi bunga 1%/thn itu pada pindah beli Emaaasssss smile, karena kagak mau beli US$ mata uang ''Penjajah" bagi rakyat Jepang kebanyakan :peace: Pertanyaan nya skrg adalah: US Dollar Index menguat terhadap mata uang dunia (misal Rp, CHF, EUR, dan GBP), kecuali thd JPY, Yen masih lebih kuat dripada USD. bagaimana kalao USD melemah seketika terhadap seluruh mata uang dunia, apakah JPY akan semakin chart downtrend ? bisa menembus level 79an ??
Will Uncle Sam let the dollar collapse ?\r\n\r\n\r\n\r\nThe American economy is breaking down. But the US dollar is one of the strongest currencies in the world right now.\r\n\r\nU.S. investment vehicles are crashing. Retirement funds have lost trillions. America has significant unemployment and the Federal Reserve continues to inflate the US dollar. Yet the greenback has outperformed almost every major world currency since the middle of summer.\r\n\r\n\r\n\r\nHow can this be?\r\n\r\nThe reeling finance and banking sectors currently has investors running and screaming from the speculative equity markets\r\n\r\n\r\n\r\n\r\nIt seems a bit strange that investors would be buying the US dollar right now, considering the myriad of problems currently facing the American economy. But the fact is the United States isn’t the only country with financial problems.\r\n\r\nEvery country in the world is facing its own economic challenges right now. As a result, foreign speculators have been rapidly selling their own domestic currencies and buying the U.S. dollar.\r\n\r\nThis influx of buying has effectively increased value of the U.S. dollar. I believe that this increase, however, will only be temporary and followed by a steep and abrupt drop leading to an official recession in the United States and the resumption of gold bull market. I’ll talk about all that in just a minute. First we need to answer…\r\n\r\n\r\n\r\nWhy Are Foreign Investors Buying the U.S. Dollar as a Hedge?\r\n\r\nDespite a legion of fundamental problems, the U.S. dollar remains the most important reserve currency in the world today.\r\n\r\nThroughout the last decade, an average of almost two thirds of the total allocated foreign exchange reserves of countries have been in U.S. dollars.\r\n\r\nThis massive US dollar-denominated forex reserve base makes the greenback appealing to foreign investors who are looking to diversify out of their own currency in times of domestic difficulties.\r\n\r\nThe U.S. dollar’s reserve currency status does many positive things for America. It allows the country to purchase the commodities at a marginally cheaper rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. It also permits the government to borrow money at a better rate, as there will always be a larger market for that currency than others.\r\n\r\nBut there’s a catch.\r\n\r\nIn the event that foreign holders suddenly decided to shift U.S. dollar-based holdings to assets denominated in other currencies, there would be horrific consequences for the U.S. dollar and economy. Fortunately changes of this kind are rare, and typically change takes place gradually over time. However, significant drops in foreign exchange reserves of the U.S. dollar do occur from time to time.\r\n\r\nBetween 2001 and 2002, foreign exchange reserves denominated in U.S. dollars dropped almost 6%. As world governments and large institutions flooded the market with U.S. dollars, the value of the greenback collapsed leading America into the 2002-2003 recession.\r\n\r\nI expect a similar chain of events to occur in the next several months.\r\n\r\n\r\n\r\nThe Next Big Leg Down for the U.S. Dollar\r\n\r\nI believe that the current accumulation of U.S. dollars will soon reverse. Investors will begin to buy back their foreign currencies pushing the value of the U.S. dollar lower than ever.\r\n\r\nThe U.S. Dollar Index, a measure of the value of the greenback against of six major world currencies, has increased 13.4% since mid-July on the back of this buying pressure. But the long-term trend is down.\r\n\r\nTake a quick look at the 25-year chart of the U.S. Dollar Index below. You’ll see the that the index was on a general trend down until it was turned around in the mid-1990s, a period characterized by significant growth in the United States. But after only a few years, the U.S. dollar was back on it’s downward track.\r\n\r\n\r\n\r\nIn the short-term foreign investors may continue to buy the U.S. dollar, pushing the value of the greenback ever higher. But there’s no doubt in my mind that the long-term downward trend in the U.S. dollar will continue.\r\n\r\nOnce the governments, institutions, and private investor who are buying the greenback right now begin to convert back to other currencies, I believe that the market will once again be flooded with U.S. dollars. This will lead to a collapse in value for the U.S. dollar and most likely another official recession.\r\n\r\nWhen this all takes place, gold will inevitably resume its march higher.\r\n\r\nI would not be surprised to see the U.S. Dollar Index below 70 as early as the first quarter of 2009. I believe that there is still a bit of short-term downside to gold as the value of the U.S. dollar continues to grow. However, I completely expect gold prices to break back above $1,000 in 2009. Get ready now.\r\n\r\n.\r\n\r\n\r\n.\r\n\r\n–
Government stimulates savings more than spending On Friday June 26, 2009, 5:46 pm EDT - The Associated Press Millions of Americans get stimulus payments in May, but money goes into savings WASHINGTON – Households raised their savings rate to the highest level in more than 15 years in May as many used a big boost in money from the government''s stimulus program to bolster nest eggs rather than to spend more. Still, with consumer spending expected to stay subdued, a sustained economic recovery seems doubtful anytime soon. The biggest chunk of the income gain in May came from $250 payments for more than 50 million Americans receiving Social Security and other government benefit programs. In all, $13 billion of the one-time payments were mailed last month. Millions of other workers benefited from the tax-credit part of the $787 billion stimulus plan. That program provides up to $400 for individuals and up to $800 to married couples. Workers began receiving that benefit in April in the form of less money withheld from pay, averaging about $10 per weekly paycheck. The bigger Social Security benefits pushed incomes up 1.4 percent in May, the biggest gain in a year. Yet it did not cause a similar jump in spending. Consumer spending rose only 0.3 percent. Instead, Americans used their government windfalls mainly to boost savings. The personal savings rate, which was hovering near zero in early 2008, soared to 6.9 percent in May. That was a 1.3 percentage-point gain from April and the highest rate since 1993. Private economists expressed concerns, saying the next few months will be vital in determining whether the stimulus package works. Many still think about two-thirds of the stimulus payments will end up being spent. That would be similar to the outcomes in previous government stimulus programs in 2001 and 2008. And it could deliver enough of an economic punch to end the recession. But analysts said high levels of layoffs or a further surge in energy prices could derail any recovery. Record-high energy prices last year dampened the effectiveness of a stimulus effort then. "The next three to six months will be the moment of truth that will determine whether the stimulus effort will be enough to break this very vicious cycle," said Mark Zandi, chief economist at Moody''s Economy.com. "I am hoping that somewhat firmer retail sales this summer and fall will convince businesses to scale back on their job cuts." One concern is that the recession, which began in December 2007, has so rattled consumers that they will keep raising their savings rate to replenish their bank and investment accounts. Those savings have been shredded by the fall in housing and stock prices. Some analysts say the savings rate could rise to 10 percent. But Nigel Gault, chief U.S. economist at IHS Global Insight, said he expects it to stabilize in coming months in the 6-to-7 percent range. "We expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe," Gault said. The reductions in payroll withholding taxes helped boost after-tax incomes 1.6 percent in May, the Commerce Department said. Without all the one-time benefits from the stimulus program, after-tax incomes would have risen only 0.2 percent. The rise in the savings rate – which is a percentage of disposable income – to 6.9 percent was far above the rates of less than 1 percent from 2005 to 2007. In those years, many Americans spent with abandon as soaring home prices and a stable stock market made them feel secure about their finances http://finance.yahoo.com/news/Government-stimulates-savings-apf-2698325410.html?x=0&&printer=1
Wall St Week Ahead: Stocks eye jobs, other data in July 4th week JPMorgan Securities said in a research note that the Standard & Poor''s 500 was facing a correction that would likely send the index down to 830 to 875, which would represent a 5 to 10 percent drop from its current level. NEW YORK, June 26 2009 (Reuters) - For stock investors, June''s job report could be a make-or-break factor next week in determining whether the recent rally has legs or not. The monthly non-farm payrolls data will come out on Thursday, instead of the usual Friday. U.S. markets will be closed on Friday, July 3rd, for the long Fourth of July, or Independence Day, holiday weekend. Investors will pick apart the job figures and reams of other economic data released during this four-day week to assess if recent signs of stabilization point to a sustainable economic recovery. Consumer confidence, the Institute for Supply Management''s June index on U.S. manufacturing activity, and domestic car sales are among the major indicators on tap. Although the U.S. economy has been mired in a recession since December 2007, investors'' optimism has increased since early March amid growing signs that the extent of the economic slump is moderating. That optimism has provided a crucial underpinning to stocks since the Standard & Poor''s 500 Index .SPX hit a 12-year closing low on March 9. This spring, the S&P 500 climbed as much as 40 percent from that low; at Friday''s close, it was still up 35.8 percent. While unpleasant surprises may trigger a long-awaited correction, analysts said evidence of further economic stabilization would make the bulls grow bolder and help stocks break out of their recent consolidation range. "It is going to depend a lot on where the surprise is," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois, referring to the non-farm payrolls data. "In the last report, people looked at the fact that the decline in payrolls was not nearly as large as expected, but the unemployment rate jumped tremendously. At the end of the day, that jump trumped things." JOBLESS RATE NEAR 10 PERCENT U.S. non-farm payrolls are forecast to lose 355,000 jobs in June versus May''s slide of 345,000, according to economists polled by Reuters. The U.S. unemployment rate is projected to jump to 9.6 percent in June from 9.4 percent in May. "We think that a spike in the rate of unemployment could actually be a positive, as it may signal that discouraged workers are coming in from the sidelines and starting to look for work again," said Phil Orlando, chief equity market strategist at Federated Investors in New York. "There may be something else that plays out next week, a sort of portfolio window dressing effect. There''s still a ton of cash sitting on the sidelines right now." At Friday''s close, the three major U.S. stock indexes finished the week mixed. The blue-chip Dow Jones industrial average .DJI slipped 1.2 percent, while the S&P 500 dipped 0.3 percent, and the Nasdaq .IXIC gained 0.6 percent. Holiday-shortened weeks tend to be volatile. At the closing bell on Tuesday, Wall Street will write "finis" on trading for both the month of June and the second quarter. So there could be even more choppiness amid so-called "window dressing" next week. That ritual calls for money managers to dump some losers and snap up recent standouts to spruce up portfolios – and their quarterly returns. MADOFF AND MOUNDS OF NUMBERS Besides the focus on the economy, the holiday-shortened week will feature what promises to be a big spectacle – the sentencing on Monday of confessed swindler Bernard Madoff for running a $65 billion Ponzi scheme. In addition to the U.S. Labor Department''s June jobs data, other reports to watch next week will include Tuesday''s S&P/Case-Shiller reading on April home prices, the Chicago Purchasing Managers Index of June business activity in the U.S. Midwest, and the Conference Board''s June consumer confidence report. The ADP national employment survey for June is due on Wednesday, along with the Institute for Supply Management''s June reading on manufacturing, May pending home sales, May construction spending and June domestic car and truck sales. On Thursday, there will also be weekly initial jobless claims, which in recent weeks have also tended to reinforce some hope of stabilization, and data on May factory orders. "It seems that the market is at least comfortable with the fact that the economy is on the horizon of the recovery. It''s certainly not getting any worse," said Cleveland Rueckert, market analyst at Birinyi Associates Inc in Stamford, Connecticut. "Our research shows that the market typically bottoms at the end of the recession, so confirmation of that will fuel continued gains. We''re bullish long term." With the start of the second-quarter earnings season looming, investors will keep an eye out for companies'' outlooks or pre-announcements. Aluminum producer Alcoa Inc (AA.N) is due to kick off the earnings season when it reports on July 7. The Federal Reserve speakers'' roster includes a speech by Federal Reserve Bank of St Louis President James Bullard on the Fed''s exit strategies on Tuesday, the very same day that Federal Reserve Bank of Kansas City President Thomas Hoenig speaks on bankruptcy and financial crisis. The S&P 500 has gained about 40 percent since touching down at a 12-year low in early March, but the rally has stalled recently as investors look for the catalysts for economic growth. JPMorgan Securities said in a research note that the Standard & Poor''s 500 was facing a correction that would likely send the index down to 830 to 875, which would represent a 5 to 10 percent drop from its current level. But, as other analysts have predicted, JPMorgan sees a rally by year end which would take the S&P up to 950 to 1,000.
27 Jun, 2009 08:12
Wall St Week Ahead: Stocks eye jobs, other data in July 4th week JPMorgan Securities said in a research note that the Standard & Poor''s 500 was facing a correction that would likely send the index down to 830 to 875, which would represent a 5 to 10 percent drop from its current level. NEW YORK, June 26 2009 (Reuters) - For stock investors, June''s job report could be a make-or-break factor next week in determining whether the recent rally has legs or not. The monthly non-farm payrolls data will come out on Thursday, instead of the usual Friday. U.S. markets will be closed on Friday, July 3rd, for the long Fourth of July, or Independence Day, holiday weekend. Investors will pick apart the job figures and reams of other economic data released during this four-day week to assess if recent signs of stabilization point to a sustainable economic recovery. Consumer confidence, the Institute for Supply Management''s June index on U.S. manufacturing activity, and domestic car sales are among the major indicators on tap. Although the U.S. economy has been mired in a recession since December 2007, investors'' optimism has increased since early March amid growing signs that the extent of the economic slump is moderating. That optimism has provided a crucial underpinning to stocks since the Standard & Poor''s 500 Index .SPX hit a 12-year closing low on March 9. This spring, the S&P 500 climbed as much as 40 percent from that low; at Friday''s close, it was still up 35.8 percent. While unpleasant surprises may trigger a long-awaited correction, analysts said evidence of further economic stabilization would make the bulls grow bolder and help stocks break out of their recent consolidation range. "It is going to depend a lot on where the surprise is," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois, referring to the non-farm payrolls data. "In the last report, people looked at the fact that the decline in payrolls was not nearly as large as expected, but the unemployment rate jumped tremendously. At the end of the day, that jump trumped things." JOBLESS RATE NEAR 10 PERCENT U.S. non-farm payrolls are forecast to lose 355,000 jobs in June versus May''s slide of 345,000, according to economists polled by Reuters. The U.S. unemployment rate is projected to jump to 9.6 percent in June from 9.4 percent in May. "We think that a spike in the rate of unemployment could actually be a positive, as it may signal that discouraged workers are coming in from the sidelines and starting to look for work again," said Phil Orlando, chief equity market strategist at Federated Investors in New York. "There may be something else that plays out next week, a sort of portfolio window dressing effect. There''s still a ton of cash sitting on the sidelines right now." At Friday''s close, the three major U.S. stock indexes finished the week mixed. The blue-chip Dow Jones industrial average .DJI slipped 1.2 percent, while the S&P 500 dipped 0.3 percent, and the Nasdaq .IXIC gained 0.6 percent. Holiday-shortened weeks tend to be volatile. At the closing bell on Tuesday, Wall Street will write "finis" on trading for both the month of June and the second quarter. So there could be even more choppiness amid so-called "window dressing" next week. That ritual calls for money managers to dump some losers and snap up recent standouts to spruce up portfolios – and their quarterly returns. MADOFF AND MOUNDS OF NUMBERS Besides the focus on the economy, the holiday-shortened week will feature what promises to be a big spectacle – the sentencing on Monday of confessed swindler Bernard Madoff for running a $65 billion Ponzi scheme. In addition to the U.S. Labor Department''s June jobs data, other reports to watch next week will include Tuesday''s S&P/Case-Shiller reading on April home prices, the Chicago Purchasing Managers Index of June business activity in the U.S. Midwest, and the Conference Board''s June consumer confidence report. The ADP national employment survey for June is due on Wednesday, along with the Institute for Supply Management''s June reading on manufacturing, May pending home sales, May construction spending and June domestic car and truck sales. On Thursday, there will also be weekly initial jobless claims, which in recent weeks have also tended to reinforce some hope of stabilization, and data on May factory orders. "It seems that the market is at least comfortable with the fact that the economy is on the horizon of the recovery. It''s certainly not getting any worse," said Cleveland Rueckert, market analyst at Birinyi Associates Inc in Stamford, Connecticut. "Our research shows that the market typically bottoms at the end of the recession, so confirmation of that will fuel continued gains. We''re bullish long term." With the start of the second-quarter earnings season looming, investors will keep an eye out for companies'' outlooks or pre-announcements. Aluminum producer Alcoa Inc (AA.N) is due to kick off the earnings season when it reports on July 7. The Federal Reserve speakers'' roster includes a speech by Federal Reserve Bank of St Louis President James Bullard on the Fed''s exit strategies on Tuesday, the very same day that Federal Reserve Bank of Kansas City President Thomas Hoenig speaks on bankruptcy and financial crisis. The S&P 500 has gained about 40 percent since touching down at a 12-year low in early March, but the rally has stalled recently as investors look for the catalysts for economic growth. JPMorgan Securities said in a research note that the Standard & Poor''s 500 was facing a correction that would likely send the index down to 830 to 875, which would represent a 5 to 10 percent drop from its current level. But, as other analysts have predicted, JPMorgan sees a rally by year end which would take the S&P up to 950 to 1,000.
28 Aug, 2009 12:00
bursa Shanghai - china sudah mulai rontok. Hangseng juga sudah mulai selloff. Pada bottom market, bulan maret, hangseng dan shangai lebih duluan naik. baru market dunia ikutan naik bersamaan dowjones. Apakah sekarang pertanda, market dunia juga mau sell off ? sudah dilihat dari market china yang sudah mulai rontok setiap hari jatuh minus -2 sampai -3%
Hong Kong Industrial Production, Producer Prices Continue To Fall In Q2 Published: Monday, 14 Sep 2009 (CNN) - Monday, the Census & Statistics Department of Hong Kong announced that output in the manufacturing sector dropped 9.5% year-on-year in the second quarter, following the 10.1% fall in the first quarter. Output has been falling since the third quarter of 2006 and the most severe decline of 10.6% was recorded in the final quarter of 2008. Decreases in output were recorded for all industry groups. The apparel industry witnessed the largest annual decrease in output, down 30.3% in the second quarter, followed by the textiles industry, down 23.6%. Quarter-on-quarter, industrial output decreased a seasonally adjusted 1% in the second quarter. The statistical agency also revealed that producer prices dropped 2.9% from the year-ago period in the second quarter, compared with the 1.4% decrease in the previous quarter. Prices declined for the second quarter in a row. The metal, computer, electronic & optical products, machinery & equipment industry recorded the largest annual fall in prices, down 7.8% in the second quarter. On a quarterly basis, prices were up 0.3% in the second quarter. .
Euro Area Employment Continues To Fall In Q2 Published: Monday, 14 Sep 2009 (CNN) - The number of employed persons in the euro area fell a seasonally adjusted 0.5% or 702,000 quarter-on-quarter in the second quarter, a report released by Eurostat said Monday. This follows a 0.7% decline in the first quarter. Quarterly decreases in employment were recorded in manufacturing, down 1.6% in the second quarter, followed by construction, down 1.4%, and agriculture, down 0.9%. For the same period, employment in the whole of the European Union, with 27 member nations, fell 0.6% or 1,443,000 persons on-quarter compared to the 0.8% drop in the previous quarter. Year-on-year, employment fell by 1.8% in the euro area and by 1.9% in the EU27 in the second quarter. This follows a 1.2% annual decrease each in both zones in the first quarter. According to Eurostat estimates, there were 145.6 million people employed in the euro area during the second quarter on a seasonally adjusted basis. The number of employed for the EU27 was 222.7 million. . . .
China Merchants profit falls on declining trade Published: 21 Sep 2009 China Merchants Holdings (International) Co., the investor in ports moving about a third of the country''s containers, posted a 14 percent drop in first- half profit as the global recession damped trade. Net income dropped to HK$1.73 billion (US$223 million) from HK$2.02 billion a year earlier, the company said in a Hong Kong stock exchange statement today. Sales plunged 20 percent to HK$1.65 billion. China Merchants joined Cosco Pacific Ltd. and Hutchison Port Holdings Ltd. in posting a slump in profit as U.S. and European consumers cut spending on Asian-made toys, furniture and other goods. The Hong Kong-based company said the effects of the global recession may begin to "gradually diminish." "Exports have seen a rebound from July, and it seems like a solid one," said Geoffrey Cheng, a Hong Kong-based analyst at Daiwa Institute of Research. "In the second half, China Merchant''s profit probably won''t decline that much." Chinese exports rose a seasonally adjusted 5.2 percent in July from the previous month. China Merchants'' first-half container volume dropped 19 percent to 20.3 million boxes, it said in the statement. Traffic at mainland ports it has investments in, including Shanghai, Shenzhen and Tianjin, fell 19 percent to 17.6 million boxes. The company proposed an interim dividend of 25 Hong Kong cents, compared with 28 cents a year earlier. It may make a full-year profit of HK$3 billion, according to the median of nine analyst estimates complied by Bloomberg, compared with HK$3.7 billion last year. Hutchison Port, the world''s largest container-terminal operator, posted its biggest profit decline in at least eight years in the first half. The Hutchison Whampoa Ltd. unit said global trade will "recover slowly" from the recession.
SHANGHAI DROPS 3 DAYS. after this news [-o<
PwC asks: When will banks learn? Tue Oct 6, 2009 (Reuters)- Private banks in Asia have not learnt the lessons from last year''s financial crisis, risking even worse performance if the same mistakes are made ahead of the next economic downturn, PricewaterhouseCoopers said on Tuesday. Banks need to change their revenue models to focus on client performance rather than earning fees from pushing products, and professionalize the industry to produce quality relationship managers that have the courage to tell clients what they need. "If lessons are not learnt…the next time a crisis comes, and it will come, you are going to hit a bottom that is even lower," said Justin Ong, PwC''s head of Asia Pacific wealth management practice, at the Reuters Global Wealth Management Summit in Singapore. "We came out of this crisis a little too fast." His comments come after many private banking clients were burned by complex products that turned toxic in the financial crisis, leading them to choose simpler investments and shun institutions worst hit, but a market rally has produced optimism. "The Asian banking environment is still very much a sales or product-driven culture," said Ong. "Private banking has to be more holistic. It cannot just be about the product, the whole business has to be more client centric." Ong was one of three authors of a global PwC survey, published in July, that showed 53 percent of rich people relied on their own research as their primary source of financial advice, reflecting a "significant" lack of trust in private bankers. Some of the problems faced by private banks in Asia include the relative lack of experience among relationship managers, with many of them below the age of 40. Asian clients, more likely to be first generation entrepreneurs than wealthy from inheritance as is more common in the West, are reluctant to pay for advice and the incentive structures of private banks are skewed toward pushing products. Ong, who said cash was king for his own portfolio, said there is a danger of clients taking unnecessarily high risks to try and regain what they lost last year, instead of thinking about preserving wealth and transferring to the next generation. "Asian investors are still very transactional. They still rely on their own expectations. The challenge is that clients are saying we know what we want, give us what we want." According to Capgemini and Merrill Lynch''s global wealth management report, the number of high net-worth individuals fell 15 percent last year, and their total worth declined by a fifth. Ong said the downturn could lead large banking giants to try to shed marginal wealth management businesses, particularly as compliance costs from increased regulation go up. "People hope to see more acquisition targets but I don''t think you''re gonna see many in the market especially if the market picks up," he said, adding that market optimism may have raised valuations for private banking assets. http://www.reuters.com/article/GlobalWealthManagement09/idUSTRE5951P020091006
CHINA''S MONETARY POLICY PLANS: EFFECT ON CONSUMERS AND INVESTORS\r\n\r\n\r\nMonetary policy is important because it has an immense impact on financing conditions in the economy. It influences prices, the availability of credit, bank’s willingness to assume risk, inflationary expectations and ultimately consumption and investment.\r\n\r\nThe People’s Bank of China, China’s central bank, has committed to the “moderately loose” monetary policy that has helped the economy recover from the global economic slump. Over the next two quarters, the central bank will pay attention to the increase in domestic asset prices and inflation expectation by fine-tuning its monetary policy, according to a recent article by Zhang Xiaohui, the director or the PBOC’s monetary policy.\r\n\r\nIn its quarterly monetary policy report, the PBOC said, “In the period ahead, the People’s Bank of China (PBOC) will unswervingly implement the appropriately loose monetary policy while fine-tuning policy with market-oriented tools in line with economic changes at home and abroad.” Liu Yuhui, the director of the Center for Chinese Economic Evaluation at the Chinese Academy of Social Sciences told China Daily that the bank has already initiated some micro-tightening measures like open market operations. In addition, China’s top banking regulator urged lenders to limit lending and focus on strengthening the credit markets instead.\r\n\r\nWhen the central government wants to tighten monetary policy it tries to absorb excessive liquidity. The bank is currently selling more bills to mop up cash, since M2, the broadest measure of money supply rose a record 28.5 percent in June 2009 compared to a year earlier. Furthermore, the central bank has kept interest rates and reserve requirements for banks unchanged this year after cutting them at the end of 2008 to combat the global credit crisis. These actions hint that stricter monetary policy is on its way, causing investors to worry. The expectation of higher borrowing costs will result in lower investment activity and lower purchase of consumer durables.\r\n\r\n\r\nThe Effect on Consumers and Investment:\r\n \r\n\r\nTighter monetary policy means that the cost of borrowing will increase. Recently, China’s central bank decided to keep its interest rate at the same level after slashing interest rates at the end of 2008. China cut its interest rate from 6.66% in October 2008 to 5.31% in December 2008. Since then it has remained at the same level. The bank’s decision to keep interest rates at 5.31% for the time being is a way the central bank is moderating its loose monetary policy and transitioning to a tighter monetary policy to support the economy as it recovers.\r\n\r\nInvestors and consumers are worried about the effect a tighter monetary policy will have on the economic recovery. Interest rates may affect consumer spending. When interest rates are higher, consumers will spend less and save more, weakening demand in the short run. They will want to spend less on illiquid assets when their financial situation worsens and thus invest less in consumer durables, such as cars, business equipment, etc. Weak demand is a threat to any recovering economy.\r\n\r\nA contraction in the money supply by the central bank is achieved through an increase in short-term market rates through interest rates. As a result, the real interest rate and capital costs increase, which decrease investment.\r\n\r\nTight monetary policy will reduce banks’ assets either directly or indirectly, by limiting credit creation when tighter reserve requirements are imposed. This will lead to reduction in loans, thus in investment. Consumers are worried that central banks will increase the reserve ratio, according to Wang Zheng, a fund manager at Jingxi Investment Management Co. The increase in reserve ratio will influence commercial banks’ refinancing cots. If finance costs increase (as they will with higher interest rates) banks will pass on the costs to consumers and investors (borrowers) which will discourage many from borrowing and thus decrease investment and consumer spending.\r\n\r\nAlso, an increase in interest rates may increase the risk that some borrowers cannot pay back their loans. Banks might become reluctant to give out more loans to those borrowers (consumers or investors) and they will be forced to cut back on planned expenditures.\r\n\r\n“In the first half, we had excessively loose monetary policy and now, in the second half, we’re moving into appropriately loose monetary policy,” Zuo Xiaolei, Galaxy Securities Co. chief economist said Xiaolei added “The central bank is doing the right thing,” Xiaolei said, without specifying how it may tighten policy. “China needs stable economic growth. China doesn’t need big ups and downs.” The PBOC has already begun absorbing excessive liquidity through open market operations in order to ease inflationary threats. By withdrawing money from circulation and raising the cost of financing. In Wednesday, August 5th, the central bank released a report where they promised to “use market oriented methods to carry out dynamic fine-tuning taking into consideration domestic and international economic conditions and price changes”.\r\n\r\n“As the recovery becomes more solid in the third quarter, we expect an orderly winding down of stimulus policies beginning in the fourth quarter or early next year. The key move will be the first hike in the reserve requirement,” said a report from Standard Chartered Bank.\r\n\r\nWhile investors and consumers worry, others, like strategist Jerry Lou, from Hong Kong thinks the government may not go in for a tight monetary policy yet. “We assume there would be two rate increases in the second half of 2010,” he said.\r\n\r\n\r\n\r\nSource: www.asiaecon.org

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