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China’s Monetary Policy at Inflection Point on Eased Inflation
Sep 9,2011 11:42CST
smm insight
Source:SMM
The People's Bank of China is expected to continue using exchange rate and open market operations to adjust money supply.

SHANGHAI, Sept. 9 (SMM) -- According to data released by the National Bureau of Statistics (NBS) on September 9th, China’s August consumer price index (CPI) rose by 6.2% YoY. China’s August producer price index increased by 0.1% MoM and was up 7.3% YoY. Producer purchase prices rose by 10.6% YoY, and grew by 0.2% from July. The producer prices of nonferrous metal materials rose by 16.8% YoY.

Although the inflation has eased in August, non-food prices in September will reach the seasonal peak and the approach of Mid-Autumn Festival will also help push up food prices, so the CPI growth may rebound again in September. Therefore, slightly falling inflation data in August can not change the severe inflation situation in 3Q, and China may only adjust monetary policy very moderately given current high inflation data and exacerbated internal and external economic conditions. China will unlikely raise the reserve requirement ratio (RRR) in the near term due to clear signs of tighter market liquidity, and will not immediately reduce the RRR as well in order to stabilize the macro control results. Although there is still possibility that China will raise the interest rates, SMM believes the possibility is low in view of limited declines in China’s CPI growth in August and strong expectations of quantitative easing policy in surrounding economies, and China’s monetary policy is at an inflection point currently. The People's Bank of China is expected to continue using exchange rate and open market operations to adjust money supply.

 

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PPI
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