Bloomberg News

China PMI, Inflation Signal Rate Cut Unlikely: Chart of the Day

November 07, 2011

(GRAPHIC: COD_CHINA_INTEREST_RATES_110711. CHART OF THE DAY. Size: 3C X 4in. (146.0 mm X 101.6 mm) Available now.)

Nov. 7 (Bloomberg) -- China’s central bank probably won’t follow Group of 20 counterparts such as Brazil and Australia in cutting interest rates unless there is a deeper slowdown in manufacturing and inflation, history shows.

The CHART OF THE DAY tracks China’s monthly Purchasing Managers’ Index and consumer-price gauge since 2006, with the official one-year lending rate in the lower panel. The PMI was at 38.8 and inflation 2.4 percent in November 2008 when the People’s Bank of China last lowered its policy rate below the current level of 6.56 percent, as shown by the purple line. The most-recent figures for manufacturing and CPI are 50.4 and 6.1 percent, respectively.

“There’s no urgency for a rate cut,” Ken Peng, senior economist for China at BNP Paribas SA, said in an interview. “Shifting to a loose monetary policy needs a consensus among government officials, which will only be reached when economic growth weakens more obviously.” The European Central Bank, Australia, Indonesia, Turkey and Brazil all reduced interest rates in recent weeks to bolster domestic demand.

The Shanghai Composite Index, an equities benchmark, has rebounded 9.3 percent since falling to a 30-month low on Oct. 21, after Premier Wen Jiabao said economic policies would be “fine-tuned.”

Analysts including Tim Condon, Singapore-based head of Asia research at ING Groep NV, says officials may use selective easing measures, such as reducing reserve requirements for smaller banks, without going as far as cutting rates.

The central bank has raised rates five times since September 2010 and boosted reserve-requirement ratios nine times to limit the risk of asset bubbles. The economy expanded 10.4 percent in 2010. Growth will slow to 9.5 percent this year, still about six times the pace for the U.S. and euro area, according to the International Monetary Fund.

Inflation probably eased to 5.4 percent in October, from 6.1 percent in September, according to the median forecast of economists surveyed by Bloomberg before a statistics bureau report on Nov. 9.

--Richard Frost, Victoria Ruan. Editors: Ken McCallum, Paul Panckhurst

To contact Bloomberg News staff for this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net; Victoria Ruan in Beijing at vruan1@bloomberg.net

-0- Nov/07/2011 21:39 GMT

To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net; Darren Boey at dboey@bloomberg.net


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