Chinese Monetary Policy Eased

March 2, 2015

The People’s Bank of China has loosened credit policy for the third time in just over three months.

  • The one-year lending and deposit interest rates were reduced by 40 basis points and 25 bps, respectively, on November 21 to 5.6% and 2.75%.
  • The reserve requirement ratio was sliced on February 5 to 19.5% from 20.0%.
  • A new statement posted this past weekend on the PBoC web site announced cuts of 25 bps, effective March 1, in the one year lending rate and deposit rates to 5.35% and 2.5%.

The statement doesn’t explain reasons for the latest policy loosening, but Chinese economic data reported During February revealed that

  1. Consumer prices rose just 0.3% on month and 0.8% on year in January, lowest since November 2009.
  2. Producer prices recorded a 4.3% 12-month rate of decline, a full percentage point more than in December.
  3. Imports plunged 19.9% on year in January, the most since May 2007.
  4. Exports (down 3.3%) were also less in January of 2015 than in January 2014.
  5. M2 money grew 10.8%, the smallest on-year increase since at least 1996.
  6. Property prices slid 0.4% on month and 5.1% on year in January.
  7. Real economic growth of 7.3% in 2H14 was the lowest since early 2009, and average growth in 2014 was the lowest full-calendar year outcome since 1990.

Analysts expect more easing by China’s central bank in coming months.  Last November’s interest rate cuts were the first since June and July of 2012.  As a global recession gained deeper traction in the second half of 2008, Chinese monetary authorities eased very aggressively during the final four months of the year, cutting the one-year lending rate by a cumulative 216 basis points and the one-year deposit rate by 189 bps.  The lows that were maintained throughout all of 2009 and most of 2010 of 5.31% on the one-year lending rate and 2.25% on the deposit rate were not far from the new current levels.  But the world faces a bigger deflationary threat now than then.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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