Chance of early China rate cut low, but stakes rising
July 10 (Reuters) -As China's much-anticipatedThird Plenum approaches, expectations for significant policystimulus are low, though thestakes are rising. The latest economic data make a strong case for monetary easingsoon, yet China's central bank remains hesitant.
Inflation is slowing in China, data released Wednesday shows. Consumer prices fell faster than expected on a monthly basis in Juneand also missed annual forecasts, while producer prices stayed negative.
Factory activity contracted againin June based onofficial data, while the Caixin services PMI slowed to an eight-monthlow.
The People's Bank of Chinamay be setting the stage for policy adjustment, but more urgency is required. The central bankis tweaking money market liquidity operations to shift emphasis toward a single short-term policy rate for enhanced guidance, while trying to shore up long-term bond yields that threaten to undermine its economic narrative.
While new bank loans are expected to surge in June, strong numbers may earn a shrug due to the expected seasonal spike; thedata is due July 10-15.
China's one-year medium-term lending facility rate is likely to be unchanged again next Monday, as the PBOC continues to refrain from cutting base rates to avoid undermining the yuan. But the renminbi faces the same outcome if China dithers on stimulus and outflows accelerate.
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Ewen Chew is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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