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Prospect of rate cut raised on economic headwind: experts

Xinhua, January 10, 2016 Adjust font size:

China's central bank may need to cut the benchmark interest rates and the reserve requirement ratio (RRR) of banks to prop up growth, Guotai Junan Securities analyst Ren Zeping has warned.

China needs to continue its loose monetary policy and press ahead with reforms as latest data indicating mild recovery of consumer prices, low producer prices and lower-than expected manufacturing activity, Ren said Sunday.

The consumer price index (CPI), a main gauge of inflation, increased 1.4 percent year on year last year, the National Bureau of Statistics (NBS) said Saturday. On a monthly basis, December's CPI edged up 0.5 percent against the previous month.

China's producer price index (PPI), a measure of cost for goods at the factory gate, dropped 5.2 percent year on year in 2015, widening from a 1.9-percent slip registered in 2014. In December alone, the PPI fell 5.9 percent from a year ago, marking the 46th straight month of decline.

The PPI and CPI are related, as the PPI reflects prices in production, while the CPI reflects prices at the point of consumption. Both data were much lower than previous levels, showing rising deflation pressure caused by sluggish demand, HSBC analyst Qu Hongbin said, although a slightly higher CPI reading eased concerns that deflation in the producer sector may creep into the consumer sector.

The Caixin General China Manufacturing Purchasing Managers' Index (PMI), an indicator of manufacturing activity, edged down to 48.2 in December from November's 48.6 percent, a private survey showed on Monday.

The PMI reading was the lowest since September, suggesting weak client demand, which could pose a major growth risk in 2016. A reading above 50 indicates expansion, while a reading below 50 represents contraction.

Weighed by sluggish demand, weak exports and flagging investment, China's economy expanded by 6.9 percent year on year in the third quarter of 2015, the lowest quarterly growth in six years.

To combat the economic slowdown, the People's Bank of China cut the interest rates and the RRR five times in 2015. Endi