China Politburo Signals No Policy ‘U-turn,’ Merrill Lynch Says

February 22, 2010, 09:34 PM EST

Feb. 23 (Bloomberg) -- China may refrain from interest- rate increases until the fourth quarter after the Communist Party’s Politburo reiterated a “moderately loose” monetary policy, Bank of America-Merrill Lynch said.

The party’s top decision-making body yesterday also reaffirmed a “proactive” fiscal policy, the state-run Xinhua News Agency reported. The statement was ahead of the meeting of the National People’s Congress, starting in Beijing on March 5, where Premier Wen Jiabao will make an annual address to the nation.

The latest statement signals “that policy changes won’t be a drastic U-turn and interest rates could be hiked only in the fourth quarter,” Lu Ting, a Hong Kong-based economist at Merrill, said in an e-mailed note today.

Chinese officials aim to rein in record credit growth to prevent inflation and asset bubbles from undermining the recovery of the world’s third-biggest economy. Officials have set a target of 7.5 trillion yuan ($1.1 trillion) of new loans this year, compared with 9.59 trillion yuan in 2009, and twice raised reserve requirements for lenders this year.

The key one-year lending rate has stayed unchanged at a five-year low of 5.31 percent since December 2008 after cuts to counter the effects of the global financial crisis.

--Paul Panckhurst. Editors: Russell Ward