Falling PPI and CPI Figures Point to Further Monetary Policy Easing
• USD/CNH Depreciates as Deflationary Risks Increase
• Leading Economists’ Expect Further PBOC Monetary Policy Easing
The USD/CNH depreciated as producer price index and consumer price index data came in at 0130GMT for the month of November. China’s producer price index figures crossed the wire at -2.70 percent coming in worse than what leading economists’ had expected at -2.40 percent and even worse from -2.20 percent in the previous period. Following a similar trend, China’s consumer price index fell to 1.40 percent reaching a new 5-year low, down from 1.60 percent in the previous period, however figures remained in line with leading analysts’ expectations of 1.60 percent.
The producer price index has now dropped for a record 33 straight months with the largest fall coming mid last year. Also with world oil prices and metal prices falling, Chinese factories have experienced lower export costs leading to further deflationary pressures. The country has also been hit with staggering manufacturing activity, decreasing property prices and concerns over local government and corporate debt. In line with the PBOC’s surprise interest rate cut last month, leading economists predict the PBOC to increase further monetary easing in the future. A general consensus amongst leading analysts’ has been a reduction in the reserve requirement ratio which could lead to more money available for lending, therefore producing a stimulatory effect on the economy. Investors could expect a further devaluation of the USD/CNH as the PBOC is expected to curve deflationary pressures and stimulate the economy with further easy monetary policy.
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