A China economist opines that China's continued economic weakness may pave the way for additional monetary easing.
This excerpt from an October 13 CNBC article provides details:
The producer price index (PPI) fell 5.9 percent, in line with expectations and after a 5.9 percent fall in the previous month. The PPI, which measures wholesale prices, clocked its 43rd straight month of declines as producers dealing with spare capacity and feeble demand for their products cut their prices.
"Overall, the still weak PPI highlights the severe overcapacity problem and sluggish domestic investment demand, in our view," said Yang Zhao, China economist at Nomura.
"Looking ahead, we expect CPI inflation to remain subdued and see downside risk to our forecast of 2.1% for Q4. PPI inflation should remain in deep negative territory (below -4% y-o-y) due to overcapacity, although it may improve slightly from Q3 due to a lower base in Q4 2014," Zhao said.
The latest inflation numbers, which come on the heels of weak import data, reflect continued slack in the world's second largest economy. Imports tumbled by a worse-than-expected 20.4 percent in September, following a 13.8 percent slide in the previous month...
The recent run of subdued data has raised expectations for further monetary easing and fiscal support .
"Given the lackluster growth outlook, we continue to expect moderate fiscal stimulus from the central government and continued monetary easing," said Zhao, who expects a reserve requirement ratio (RRR) cut in the fourth quarter.
The monetary easing will continue into 2016, Zhao said, predicting four RRR cuts - 50 basis points each - and two benchmark interest rate cuts - 25 basis points each - next year...
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