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May 9, 2013
Forex Flash: Rebound of Chinese CPI makes easing unlikely - Nomura
Nomura economist Zhiwei Zhang notes that CPI inflation rose to 2.4% y-o-y in April from 2.1% in May against consensus views of 2.3%.
He comments that the rebound of CPI inflation makes policy easing unlikely. He expects CPI inflation to be on an uptrend over the next several months, rising to 2.7% in May and 2.9% in June, partly due to base effects. He writes, “As inflation gets close to the one-year benchmark deposit rate of 3%, it reduces the possibility of an interest rate cut. A rate cut would also contribute to more speculative pressure in the property market.” Further, he continues to expect monetary policy to tighten quantitatively in Q2. He believes that credit supply, as measured by social financing, peaked in Q1 and as policy tightens he expects GDP growth to trend lower to 7.5% in Q2 and 7.3% in H2. Finally, he expects April activity data to show a rebound, but mostly day to working day distortions.
He comments that the rebound of CPI inflation makes policy easing unlikely. He expects CPI inflation to be on an uptrend over the next several months, rising to 2.7% in May and 2.9% in June, partly due to base effects. He writes, “As inflation gets close to the one-year benchmark deposit rate of 3%, it reduces the possibility of an interest rate cut. A rate cut would also contribute to more speculative pressure in the property market.” Further, he continues to expect monetary policy to tighten quantitatively in Q2. He believes that credit supply, as measured by social financing, peaked in Q1 and as policy tightens he expects GDP growth to trend lower to 7.5% in Q2 and 7.3% in H2. Finally, he expects April activity data to show a rebound, but mostly day to working day distortions.