China's central bank unexpectedly holds fire on rates as economy wobbles

Galtero Lara
Junio 18, 2018

China has been trying to ensure liquidity supply to cushion any economic slowdown and help lenders meet repayment obligations.

Retail sales grew 8.5 percent in May, the slowest since June 2003, according to Reuters calculations.

Industrial production climbed 6.8 percent but slower than the 7 percent increase logged a month ago, the National Bureau of Statistics reported. The People's Bank of China (PBOC) has tried to support growth by increasing liquidity, and even though it could still pace the Fed's hike as forecast by economists, the fact that it has not done so immediately is being interpreted as a sign of concern over the economy.

Many analysts have been anticipating a widespread slowdown in H2 of this year as Beijing's attempts to rein in China's systemic debt problem finally take its toll on the wider economy.

"Although the PBOC is still likely to raise interest rates slightly in open market operations, China does not need to follow the Fed to raise interest rates in the long run, let alone raise benchmark deposit and lending rates", Sheng said. China's auto industry said on Monday that some vehicle buyers were holding off on purchases, presumably until import tariffs are cut from July 1.

May industrial output rose 6.8 percent from a year earlier, versus estimates for a touch less than April's 7 percent.

Trade was one of the few bright spots in May data, but analysts expect exports may also lose momentum in coming months amid rising trade tensions with the United States.

Private sector investment, which accounts for about 60 percent of overall investment in China, also cooled.

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That's down 0.9 percentage points from the growth during the first 4 months, for the slowest pace of growth in 2 decades.

Chinese exporters have been front-loading their shipments due to changes in the global trade environment, commerce ministry spokesman Gao Feng said at a regular press briefing on Thursday, amid rising trade tensions with the United States.

On Friday, Washington is expected to release a list of some $50 billion worth of Chinese goods that will be subject to a 25 percent tariff. With U.S. President Donald Trump now saying he'll confront China "very strongly" over alleged trade abuses, that support to the domestic economy could also be under threat.

Industrial output, investment and retail sales all grew less than expected, offsetting upbeat trade data and suggesting further weakness ahead if Beijing perseveres with its crackdowns on factory pollution, questionable local government projects and shadow banking.

"Deleveraging has had a large impact on the real economy, but current economic growth still remains relatively steady, so I'm not sure whether monetary and financial policies will change overnight in response", said Yang Yewei, analyst at Southwest Securities.

Property investment growth eased in May, but a construction boom which began in 2016 may still be going strong.

"But I think after July and August the downward pressure in the economy may increase significantly and policy adjustments will happen then". Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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