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Tuesday 11 November 2008
China’s Inflation Slows, Giving Room for More Rate Reductions
China’s inflation cooled to the slowest pace in 17 months, giving the central bank more leeway to keep cutting interest rates to counter the financial crisis.
China’s Inflation Slows, Giving Room for More Rate Reductions
By Nipa Piboontanasawat 11 November 2008
(Bloomberg) – China’s inflation cooled to the slowest pace in 17 months, giving the central bank more leeway to keep cutting interest rates to counter the financial crisis.
Consumer prices rose 4 percent in October from a year earlier, the statistics bureau said today, after gaining 4.6 percent in September. That compared with the 4.2 percent median estimate of 18 economists surveyed by Bloomberg News.
China’s cabinet has pledged 4 trillion yuan ($586 billion) of spending to boost domestic demand as waning export orders and a property slump threaten to derail the world’s fastest-growing major economy. The central bank may keep lowering borrowing costs after three reductions in the past two months, Governor Zhou Xiaochuan said Nov. 9 in Sao Paulo.
“Avoiding a hard-landing of the economy is the priority for policy makers,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. “The fiscal stimulus is a big help but there is much room for the central bank to cut interest rates still.”
Inflation, which accelerated in 2007 and early 2008 largely because of a pork shortage, has slowed for six straight months on improved food supplies and falling prices for energy and commodities.
The government announced the fiscal jolt after economists began ratcheting down economic growth forecasts.
Manufacturing Contracts
China’s expansion may be as little as 5.8 percent this quarter, the weakest pace since at least 1994, Credit Suisse AG estimates. That compares with 9 percent in the third quarter and 11.9 percent for all of last year.
The impact of the government’s fiscal package “isn’t likely to be felt until the middle of the year,” said Tao Dong, the Hong Kong-based chief Asia economist for the bank. He forecasts 0.4 percent inflation for China next year, saying the country is “heading into a period of near-deflation.”
Manufacturing contracted by the most on record in October as output and new orders fell, according to two purchasing managers’ indexes, one backed by the government and the other published by CLSA Asia-Pacific Markets.
“Beijing doesn’t want to be sitting still while its economy slows,” said Carl Weinberg, chief economist at High Frequency Economics Ltd. in New York. “China has set the bar for other countries to follow when coordinated economic stimulus is discussed at the G-20 Summit next week.”
The stimulus package running through 2010 includes building low-rent housing, rural infrastructure, railways, roads and airports; cutting taxes on business investment; and subsidizing farmers.
Besides reducing interest rates, the central bank has lowered the proportion of deposits banks must set aside as reserves, stalled gains by the yuan against the dollar and eliminated quotas that restrict lending.
The key one-year lending rate is 6.66 percent, and the deposit rate is 3.6 percent.
Producer prices rose 6.6 percent in October from a year earlier, the least in eight months, the National Bureau of Statistics said yesterday.
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China’s Inflation Slows, Giving Room for More Rate Reductions
By Nipa Piboontanasawat
11 November 2008
(Bloomberg) – China’s inflation cooled to the slowest pace in 17 months, giving the central bank more leeway to keep cutting interest rates to counter the financial crisis.
Consumer prices rose 4 percent in October from a year earlier, the statistics bureau said today, after gaining 4.6 percent in September. That compared with the 4.2 percent median estimate of 18 economists surveyed by Bloomberg News.
China’s cabinet has pledged 4 trillion yuan ($586 billion) of spending to boost domestic demand as waning export orders and a property slump threaten to derail the world’s fastest-growing major economy. The central bank may keep lowering borrowing costs after three reductions in the past two months, Governor Zhou Xiaochuan said Nov. 9 in Sao Paulo.
“Avoiding a hard-landing of the economy is the priority for policy makers,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. “The fiscal stimulus is a big help but there is much room for the central bank to cut interest rates still.”
Inflation, which accelerated in 2007 and early 2008 largely because of a pork shortage, has slowed for six straight months on improved food supplies and falling prices for energy and commodities.
The government announced the fiscal jolt after economists began ratcheting down economic growth forecasts.
Manufacturing Contracts
China’s expansion may be as little as 5.8 percent this quarter, the weakest pace since at least 1994, Credit Suisse AG estimates. That compares with 9 percent in the third quarter and 11.9 percent for all of last year.
The impact of the government’s fiscal package “isn’t likely to be felt until the middle of the year,” said Tao Dong, the Hong Kong-based chief Asia economist for the bank. He forecasts 0.4 percent inflation for China next year, saying the country is “heading into a period of near-deflation.”
Manufacturing contracted by the most on record in October as output and new orders fell, according to two purchasing managers’ indexes, one backed by the government and the other published by CLSA Asia-Pacific Markets.
“Beijing doesn’t want to be sitting still while its economy slows,” said Carl Weinberg, chief economist at High Frequency Economics Ltd. in New York. “China has set the bar for other countries to follow when coordinated economic stimulus is discussed at the G-20 Summit next week.”
The stimulus package running through 2010 includes building low-rent housing, rural infrastructure, railways, roads and airports; cutting taxes on business investment; and subsidizing farmers.
Besides reducing interest rates, the central bank has lowered the proportion of deposits banks must set aside as reserves, stalled gains by the yuan against the dollar and eliminated quotas that restrict lending.
The key one-year lending rate is 6.66 percent, and the deposit rate is 3.6 percent.
Producer prices rose 6.6 percent in October from a year earlier, the least in eight months, the National Bureau of Statistics said yesterday.
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