(Yicai) April 1 -- China will not implement quantitative easing for now, several international investment banks told Yicai in response to rumors that the greater trading of government bonds could lead to a looser monetary policy. However, China will probably continue to trim interest rates this year and this could coincide with the US Federal Reserve’s next cuts in June.

The buying and selling of government bonds by the People’s Bank of China does not constitute quantitative easing, Wang Tao, head of Asian economic research and chief China economist at Swiss lender UBS, told Yicai. Rather it is a move aimed at enriching the monetary policy toolbox. It does not mean that China will introduce quantitative easing or issue stimulus policies on a large scale, he added.

The PBOC will not start quantitative easing, US investment bank Morgan Stanley said. The gradual increase in Treasury bond buying and selling is an attempt to improve the open market operation mechanism, and move away from the use of central bank bills, reverse repo and lending instruments to control financial conditions. This is standard practice for central banks around the world.

It is unlikely that China will implement quantitative easing similar to that of the US, US financial services company Goldman Sachs said. Recent government communications still put the focus on the structure and effectiveness of credit issuance, rather than the aggregate amount.

However, many market players believe there is still room for more easing.

“Nomura expects two more rounds of rate cuts this year, probably in the second and fourth quarters, after the last central government economic work conference put the emphasis on the mobilization of unused funds and improving efficiency,” said Lu Ting, chief economist of the Japanese investment bank’s China arm. “However, the timing of the rate cuts may depend in part on the outlook for an actual turning point in the Fed's monetary policy.”

"If the Fed cuts interest rates in June, we expect central banks in Asian economies to change their stance,” said Wang Wei, chief executive of US lender Bank of America’s China branch. “Central banks in China, South Korea, India, Indonesia, the Philippines, Thailand and New Zealand are likely to join the easing camp and trim interest rates almost simultaneously or in the second half of 2024.”

Editor: Kim Taylor