10-JUNE-09: CPI inflation rate in China at -1.4 per cent in April 2009

The monthly CPI inflation rate for May 2009 decreased, now for the fourth consecutive month, said the National Bureau of Statistics in China, thereby deepening the deflationary stance of the economy this year. But much of the deflation comes from the fact that y-o-y rates are against the high inflation months of 2008. Inflation rates in February, March, April and May last year averaged 8.3 per cent.

Therefore, it is still not to be expected to have persistent deflation over the medium term. Much more so, as the financial and monetary stimulus will come to full effect in the coming months. Expectations are that positive CPI inflation will be realised again as early as inthe first quarter, more likely still in the fourth quarter 2009, I think.

RMB/USD: Slight depreciation of the exchange rate in May 2009

The RMB/USD rate slightly depreciated in May 2009. The exchange rate decreased by the small margin of 0.14 per cent in May 2009, thereby neutralizing the 0.15 per cent gain of April 2009. The exchange rate is thus stable around RMB/USD 6.835 since January 2009. It is clear by now that in the wake of the global financial and economic crisis RMB appreciation is off the table for the Chinese authorities.

11-MAY-09: CPI inflation rate in China at -1.5 per cent in April 2009

The National Bureau of Statistics in China announced today that the monthly CPI inflation rate for April 2009 decreased, now for the third consecutive month. The deflationary stance of the economy thus deepened again after a slight relief in March, when prices eased by -1.2 per cent compared to  -1.6 per cent in February.

But in fact a huge part of the recent drops in inflation rates has to be credited to the fact that y-o-y rates are against the high inflation months of 2008. Inflation rates in February, March and April last year were at 8.7 per cent, 8.3 per cent and 8.5 per cent, respectively. So, it is not to be expected to have persistent deflation over the medium term. Much more so, as hopes are high for the financial and monetary stimulus to take off in the coming months. First signs of recovery from deflation should therefore become clear as early as in the fourth quarter 2009.

Domestic loans (RMB) increase by 29.72 per cent in China at end-April 2009

Monthly domestic loan increases in China were stable at just below 30 per cent for the second month in a row. After 29.78 per cent increases in March, RMB loans rose by 29.72 per cent in April. Still, even though this pace is much above the 15 per cent threshold of the “neutral stance”, in the short-term this will not trigger inflation. Indeed, high growth rates of credit are necessary to revive the economy and save it from deflation. But again, a good plan to fight the crisis has an exit option.

Broad money (M2) grew 25.95 per cent in China at end-April 2009

Monetary aggregate M2 increased by 25.95 per cent year-on-year in April 2009, up 0.45 percentage points from March 2009. The high growth rates  of money supply so far in 2009 (average of  22.8 per cent growth over the last four months) show the efforts of the policies to stimulate the economy in the wake of the financial and economic crisis. Rightly so as deflation is a real threat in the short-term.

RMB/USD: Slight appreciation of the exchange rate in April 2009

After no movements in the exchange rate over the first quarter, the RMB/USD rate slightly appreciated  in April 2009. The exchange rate rose by the small margin of 0.15 per cent to RMB/USD 6.285 at the end of April. This is too small a move to signal a change in stance of the Chinese authorities; they put on hold the RMB appreciation against the USD in the wake of the global financial and economic crisis.

16-APR-09: CPI inflation rate in China at -1.2 per cent in March 2009

The National Bureau of Statistics in China announced that the monthly CPI inflation rate for March 2009 decreased by -1.2 per cent over March 2008. This is a slight relief of the fear of deflationary pressure as compared to the February decline of -1.6 per cent. Still, for the first quarter 2009 as a whole, the inflation rate arrives at -0.6 per cent compared to the first quarter 2008. Nevertheless, I do not expect to have deflation here to stay with us. Hoping for the large-scale financial stimulus to take off in the coming months, I expect a quick recovery from this current decline.

Monetary Policy Committee (MPC): 1st Quarter 2009 Meeting in April 2008

The MPC convened its first meeting 2009 in the beginning of April 20089. The meeting analyzed the current economic and financial situation, highlighting that financial turmoil is still spreading and the crisis deepening. The meeting held that despite this adverse economic environment China’s policies were able to maintain liquidity in the domestic financial system. This is indeed confirmed by the recent figures published on M2 growth and the rate of increase of domestic loans. This right and important, I think, but authorities should not forget to watch out for the medium to long term: An exit option from expansionary policies might be needed soon!

Domestic loans (RMB) increase by 29.78 per cent in China at end-March 2009

China’s monthly domestic loan increases jumped by another 5.6 percentage points in March 2009 and increased a whopping 29.78 per cent over March 2008. Even though this rate is impressive and much higher than the 15 per cent threshold of the “neutral stance”, in the short-term this will unlikely trigger any inflationary threat. On the contrary, high growth rates of credit are needed to revive the economy and save it from deflation. But watch out for the medium to long term: An exit option from expansionary policies will be needed sooner rather than later!

Broad money (M2) grew 25.5 per cent in China at end-March 2009

Monetary aggregate M2 increased by 25.5 per cent year-on-year in March 2009, up another 4.7 percentage points from February 2009 and 6.7 percentage points from January 2009. While the high growth rates show the effectiveness of the policies of the last months, the Monetary Policy Committe meeting of the first quarter 2009 also reaffirmed this stance for the immediate future. Rightly so as China’s economy is on the edge of deflation in the short-run.