(Yicai Global) July 1 -- China will gradually pivot the focus of its monetary and fiscal policies to risk prevention in this half of the year, away from the stable growth approach which was at the heart of its stance in the first six months, analysts told Yicai Global.

Judging from the central bank’s comments released after its second-quarter monetary policy committee meeting earlier this week, the authorities are now focused on keeping the economy running in a reasonable range, balancing the recovery with risk prevention and preventing external risks, according to Wang Hao, senior analyst at Zhixin Investment Research Institute.

The analysts noted that the People’s Bank of China used language not seen in its first-quarter statement, such as “prevent external shocks,” “maintain overall economic stability and enhance resilience economic development,” “implement comprehensive policies and support coordinated regional development,” and “improve regulation of deposit interest rates and adjust the self-regulatory method for setting the upper limit on deposit interest rates.”

The impact from the Federal Reserve’s tightening of US monetary policy and the poor Covid-19 situation in China’s neighboring countries are the main external risks to prevent, said Ming Ming, deputy director of the Citic Securities Research Institute.

The Chinese authorities will not tighten or ease monetary policy by much this half, and will probably keep to a moderately loose stance, the analysts predicted, adding that they are also not likely to change the policy interest rate even though the economy is recovering well. Policy will probably remain somewhat loose to ensure fund prices do not fluctuate significantly, Wang said.

In addition to the potential overseas risks, Wang said increasing government bond issuance and interest payment pressures may also disrupt market liquidity, leading to a steady rise in market fund interest rates from low levels. As the second half may also see potential bond defaults, monetary policy must remain moderately loose, he added.

As monetary authorities around the world tighten policy, the Chinese government will gradually make greater effort through fiscal policy to boost the resilience of economic development and be more precise and efficient in policy control, according to Ming.

Editors: Tang Shihua, Futura Costaglione