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PBoC can't stop GDP dropping to 6.4% this year - Scotiabank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 9, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Analysts at Scotiabank explained that monetary conditions continue to ease in China.

    Key Quotes:

    "The People’s Bank of China lowered the Reserve Requirement Ratio (RRR) by 50 basis points for all financial institutions on February 29th. The cut — the fifth since February 2015 — brings the ratio for most large banks to 17% of deposits. The RRR reduction is aimed at supporting adequate liquidity in the banking system and boosting money supply and credit growth, thereby offsetting the strong decelerating forces the Chinese economy is facing.

    The country’s authorities are operating in a challenging context: while the economy is in need of a boost, it would simultaneously benefit from relatively tight monetary conditions to limit ongoing capital outflow pressure, which is placing the Chinese yuan on the defensive.

    The potential for further bouts of financial market volatility over the coming months remains high, forcing the government to keep its interventionist approach in place. We expect additional cautious monetary easing over the coming months, together with sizable fiscal injections.

    Nevertheless, in our view, monetary and fiscal stimulus will not be enough to prevent China’s real GDP growth from slowing to 6.4% this year from 6.9% in 2015. The inflation outlook is favourable as persistent producer price deflation is helping keep costs in check. Consumer prices increased by 1.8% y/y in January; we expect only a modest pick-up over the coming quarters, with inflation at slightly over 2.0% y/y at the end of 2016.
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