econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 17 June 2015

China Nears End of the Rate-Cutting Cycle

Written by , GEI Associate

According to China's National Bureau of Statistics, China's consumer-price index (CPI) rose 1.2% in May from a year earlier, slower than the 1.5% increase in April. The producer-price index (PPI) dropped 4.6% in May from a year earlier, extending declines of 39 consecutive months.

Both CPI and PPI are worse than market expectations. Subdued CPI inflation and sinking factory prices reflect the still weak domestic demand and rising risks from deflation. The data also raised concerns that China might be following in the footsteps of Japan, where a decade-long fall in consumer prices has dragged on economic growth. As many analysts believe, the latest data will likely keep the pressure on Beijing for further policy easing to avert a sharper economic slowdown and deflation.

However, there are several reasons showing that China is near the end of the rate-cutting cycle.

First of all, CPI is likely to rebound over the coming quarters. Because premier Li Keqiang urged lower internet-related fees last month, transport and telecommunication prices declined 1.3% year-on-year, dragging down the CPI in May. On the other hand, food prices in May actually rose 1.6%. Due to a sharp drop in pig numbers in recent months, pork prices are expected to rise. As one of the key swing factors in China inflations, pork price would help consumer price to strengthen in the following months. Moreover, the sharp fall in global commodity prices starting over a year ago also provide a much weaker base for comparison, assuaging the concerns over deflation.

Secondly, there are expectations that the U.S. Federal Reserve will begin to raise interest rates as the U.S. economy regains its footing. China's capital outflows have been continuing for more than a year. The expectations of higher U.S. rates would lead more capital outflows as investors seek better returns in U.S. dollar assets. Therefore, this could lower Beijing's willingness to cut interest rates.

Thirdly, in order to boost lending and stimulate the economic growth, China has already cut interest rates three times and lowered the reserve requirement ratio twice. Nevertheless, the measurable impact of the easings can only be found in the stock market, which has more than doubled since China began cutting interest rates in November. Although the wealth effect of the stock market can boost the overall economy, it is less likely for China to cut the interest rate too much due to the growing concerns about a market bubble.

Furthermore, a series of readings suggest that China's economy appears to be stabilizing. According to the National Bureau of Statistics, value-added industrial output in China ticked up to 6.1% year-over-year in May. Banks issued 900.8 billion yuan ($145.3 billion) of new loans in May, compared with 707.9 billion yuan in April. China's housing sales in the first five months of the year rose 5.1% over year-earlier levels, reversing the 2.2% decline seen in the first four months. Industrial profits rose year-over-year in April, reversing a six-month decline.

Therefore, although there could be one more rate cut, as some analysts predict, the central bank might call a halt to its rate-cutting efforts later this year.

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Are You Feeling the Economic Surge?
Big Mess in Italy
News Blog
Earnings And Economic Reports: Week Starting 05 December 2016
Early Headlines: Green Pty Cancels - Then Appeals PA Recount, IRS Serves Summons On Bitcoin Co, Most Mfg Jobs Lost To Automation, 2017 US Hosing Outlook And More
The Smartphone Market Is Not A Two-Horse Race
Italy's Referendum: What's At Stake And What You Need To Know
There Were Over A Million Casualties At The Somme
The Best Countries In The World
What We Read Today 03 December 2016 - Public Edition
Big Mac Index In Its 30th Year
What We Read Today 03 December 2016
Scientists Find Giant Underground Ice Reserve On Mars
Sustained 3 To 4% GDP Growth Is A Huge Stretch
New Earthquake Risk Model Confirms Possibility Of Statewide Earthquake In California
Subprime Auto Debt Grows Despite Rising Delinquencies
Investing Blog
How To Invest When The Fed Destroys Capitalism
Technical Thoughts: Manage Risk
Opinion Blog
Why Did Trump Win? A Different Perspective, Part 3
Jobs Without Disruptions Through Concordian Economics
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
02Dec2016 Market Close: WTI Crude Climbed Back Up To Previous 51 Handle, US Dollar Index Trading At The100 Level, Oil Rig Count At 10-Month High
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved