The Chinese yuan is strengthening against many of its major currency competitors on Tuesday, buoyed by the latest economic data showing deflation. The yuan also rose on the People’s Bank of China (PBoC) suggestion that it is ready to inject additional stimulus to support the nation’s post-coronavirus economic rebound. Could the yuan test 6.9999 by the end of the year?
According to the National Bureau of Statistics (NBS), the consumer price index (CPI) tumbled 0.9% last month, bringing the annualized rate to 3.3%. The median estimate was -0.5%. Prices for clothing dipped 0.6%, consumer durables shed 1.7%, and daily use goods slid 0.1%. Food costs rose by 3.7%.
The producer price index (PPI) fell 3.1% year-over-year last month, which was the steepest deflation rate in four years. The market had anticipated a 2.6% drop. The cost of means of production declined 4.3% as extraction slumped 11.6%, raw materials plunged 8.8%, and processing slipped 2.2%.
Experts say the demand-side pressures will continually weigh on prices. This could turn out to be a boon for the central bank since it could reduce risks over higher inflation and strengthen the case for additional cuts to interest rates.
In other data, new motor vehicle sales advanced 4.4% in April, up from the 43.3% crash in March. Next on the data front will be April retail sales, industrial production, fixed-asset investment, and the unemployment rate.
Outstanding loan growth surged 13.1% YoY in April, while the M2 money supply soared 11.1%.
Last week, exports came in at a better-than-expected boost of 3.5%, but imports cratered 14.2%.
Over the weekend, the PBoC signaled in its first-quarter monetary policy report that it would increase its stimulus efforts to help grow the Chinese economy and achieve the government’s 5% gross domestic product target in the second quarter. While it did say it will not engage in a “flood-like” stimulus to support growth, officials note that they plan to be more flexible to combat financial risks.
Despite the coronavirus outbreak, the central bank believes its long-term economic trend is stable.
But at present, challenges faced by China’s economic development are unprecedented, we must fully consider difficulties, risks and uncertainties. We should properly handle the relationship between stabilizing growth, ensuring employment, adjusting structure, preventing risks and controlling inflation.
The USD/CNY currency pair tumbled 0.23% to 7.0830, from an opening of 7.0992, at 17:12 GMT on Tuesday. The EUR/CNY edged up 0.14% to 7.6882, from an opening of 7.6725.