SHANGHAI, Aug. 9 (SMM) -- China’s central bank released China Monetary Policy Report for Q2 2012 on August 2nd. According to the report, China should strengthen efforts to fine tune monetary policy. On August 4th, a meeting was held in Beijing and participated by presidents from branches of the People’s Bank of China. The meeting also emphasized the importance to fine tune China’s monetary policy.

The underscore of a fine tuning of monetary policy within one week suggested that market liquidity will be loosened in the future, with possible lower bank requirement reserve rate and interest rate expected. The reasons are listed below:

First, China’s economic growth slowed down significantly. If no measures are adopted, China’s GDP growth may be lower than the 7.5% target set in early 2012.

Second, liquidity is very tight in various industries. Taking iron and steel industry for example, downstream producers and traders already felt financial strain. Some traders already reported fund chain breaks and they were sued at court due to debt problem.

Steeleaes believed that China’s central bank will cut bank requirement reserve rate or interest rate in late August in order to ease tight cash flow pressure. However, the possible loose monetary policies will limitedly boosting steel prices. The reasons are as follows:

First, the overall industry is in supply surplus which can only be balanced by production reduction rather than fine tuning of policies.

Second, banks are cautious to lend money to iron and steel industry in light of fund chain breaks reported from the industry. Even if monetary policy is loosened to certain extent, liquidity at iron and steel industry will be limitedly improved since banks will prefer lending loans to other industries.