As China faces growing risk of a deflationary spiral, the nation’s central bank will come under further pressure to expand credit, the Wall Street Journal reported, citing economists.
Consumer prices in the world’s second largest economy rose just 0.8 percent in January compared with the same period a year ago, marking the weakest growth in five years, data showed Tuesday.
Meanwhile, producer prices fell 4.3 percent from a year earlier, their sharpest drop since late 2009.
With the economy slowing and several industries dealing with overcapacity, China is contributing to the world’s pricing problems through its huge exports of manufactured goods, the Journal noted.
Amid the slackening growth and weak prices, some investors are sending money out of China in search of better returns.
All this is fueling expectations that the People’s Bank of China will make one or more broad interest-rate cuts in coming months totaling up to a half percentage point, the report said.
The central bank is also expected to further reduce the reserve requirement for commercial lenders to help inject more liquidity into the system.
But aggressive monetary easing to reflate the economy could increase overcapacity, blunt efforts to restructure the economy away from investment toward consumption and services and fuel more bad debt, the report noted.
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