PBoC could tighten its monetary policy further – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren assessed the recent Chinese inflation figures and the potential stance from the PBoC.

Key Quotes

“Chinese inflation numbers surprised strongly on the upside as producer prices (PPI) rose to a new cycle high of 6.9% y/y (consensus 6.5% y/y, previous 5.5% y/y). CPI inflation was also higher than expected at 2.5% y/y (consensus 2.4% y/y, previous 2.1% y/y) driven by an increase in the core inflation (excludes food) which moved up to 2.5% y/y from 2.0% y/y. It’s still below the 3% target but has a clear trend upwards”.

“Today’s numbers increase the likelihood of further tightening from the PBoC as economic data also looks robust currently. An increase in the official lending rate can no longer be ruled out”.

“So far, the PBoC has tightened mainly through a small lift to repo rates in money markets and ordering banks to restrain lending in Q1. But official policy rates have not been touched”.