China’s Slowing Inflation puts Low-Interest Rates back on the Table

Published Date : Jan 10, 2019

China’s central bank could lower interest rates in the near future, according to economic experts in China. According to official figures released on last Thursday, China’s producer inflation growth rate was lowest in last two year period The Producer Price Index (PPI) in December 2018 climbed by 0.9 percent from the previous year. This growth has surprised many economists, who had predicted 1.6 percent rise in an earlier poll.

The average price of goods measured before they reach the consumers, has also shown the lowest growth since September 2016. Producer Price Index growth stood at 2.7 % in November.  The official data indicated that lower energy prices were largely responsible for the slowest inflation in recent times. Lower domestic demand is also held responsible for the slow growth as the Chinese economy experienced reduction in industrial inputs and consumption in large measures.

Lowering Interest Rates Becoming Crucial to Encourage Growth 

Low inflation and expected estimated lower corporate earnings leave plenty of scope for Chinese central bank to ease its monetary policy, according to experts. Julian Evans-Pritchard, senior China economist at Capital Economics, was one such expert. According to Julian, the central banks during these difficult times could do more to ease the financial pressure on industrial firms and measures such as cutting benchmark lending rates could be a promising step.

The latest data showed that in 2018, China’s PPI experienced a rise of 3.5% as the full year CPI rose by 2.1%. Earlier this year Beijing has set target of 3 percent in consumer inflation for the entire year.  In such case, the central bank could potentially roll out more aggressive policies to encourage growth. This would not only lead to lower interbank rates but also lower bond yields. 

As trade war between the US and China intensifies, experts are monitoring Chinese official figures closely. Today, the Chinese spokesperson made an announcement that today’s official talks between the two sides laid ground to resolve the ongoing dispute.