11 Feb 2015
China: Disinflationary pressures add to further PBOC easing case - Nomura
FXStreet (Bali) - Tuesday's subdued Chinese inflation adds to Nomura's conviction that the last PBOC's RRR cut is just the beginning of a series of monetary policy easing, the bank notes.
Key Quotes
"China’s CPI inflation dropped sharply to 0.8% y-o-y in January, the lowest reading since December 2009, from 1.5% y-o-y in December, largely due to lower food and service inflation, falling fuel prices and Lunar new year distortions (Consensus: 1.0%; Nomura:0.8%). PPI deflation deepened to -4.3% y-o-y from -3.3%, the lowest since November 2009, due to falling commodity prices and worsening overcapacity in upstream industries (Consensus: -3.8%; Nomura: -3.9%)."
"This strong disinflationary pressure may partly explain the People’s Bank of China’s (PBoC) 4 February decision to cut banks’ reserve requirement ratio (RRR) by 50bp. Inflation may rebound in February due to the Lunar new year effect, but we expect it to remain subdued in the coming months with concerns over deflation risks continuing to rise."
"This adds to our conviction that the RRR cut is just the beginning of a series of monetary policy easing. We maintain our view that there will be three more RRR cuts (50bp each quarter) and one benchmark interest rate cut (25bp in Q2) this year."
Key Quotes
"China’s CPI inflation dropped sharply to 0.8% y-o-y in January, the lowest reading since December 2009, from 1.5% y-o-y in December, largely due to lower food and service inflation, falling fuel prices and Lunar new year distortions (Consensus: 1.0%; Nomura:0.8%). PPI deflation deepened to -4.3% y-o-y from -3.3%, the lowest since November 2009, due to falling commodity prices and worsening overcapacity in upstream industries (Consensus: -3.8%; Nomura: -3.9%)."
"This strong disinflationary pressure may partly explain the People’s Bank of China’s (PBoC) 4 February decision to cut banks’ reserve requirement ratio (RRR) by 50bp. Inflation may rebound in February due to the Lunar new year effect, but we expect it to remain subdued in the coming months with concerns over deflation risks continuing to rise."
"This adds to our conviction that the RRR cut is just the beginning of a series of monetary policy easing. We maintain our view that there will be three more RRR cuts (50bp each quarter) and one benchmark interest rate cut (25bp in Q2) this year."