China’s central bank to stick to its guns by lowering interest rates despite soaring pork price, analysts say

The People’s Bank of China is under pressure to provide liquidity to support growth with the US Federal Reserve and European Central Bank also planning changes

China’s headline-grabbing pork price surge has yet to translate into broad-based inflation

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Pork prices in China rose 46.7 per cent in August compared to a year earlier. Photo: Simon Song

Published: 12:34pm, 12 Sep 2019Updated: 9:10pm, 12 Sep 2019

China’s central bank will stick to its guns to lower interest rates and boost bank liquidity to encourage more lending and support the economy despite skyrocketing pork prices across the country, analysts said.

While the surge in pork prices – up 46.7 per cent in August compared to a year earlier – has fanned public discontent and jumped to the top of Beijing’s policy agenda, overall Chinese inflation remains under control, with the August headline consumer price index remaining stable at 2.8 per cent, below the government’s full-year target of 3 per cent.

Data released by the People’s Bank of China (PBOC) on Wednesday showed that outstanding bank loans at the end of August rose 12.4 per cent from a year earlier, decelerating from 12.6 per cent at the end of July and 13.2 per cent in August 2018, in a sign that Beijing’s monetary easing efforts to date have not been sufficient to bolster growth.

In the face of weak economic growth and subdued domestic inflation, as well as expectations for further monetary easing by the US Federal Reserve and European Central Bank later this month, China’s central bank is set to go further on its monetary easing path by lowering the new loan price rate to reduce the cost of borrowing as well as pump more liquidity into the market to give banks more money to lend, analysts said.

Liu Xuezhi, a senior researcher with the Bank of Communications, the country’s fifth largest lender by asset size, said that the central bank’s hands will not be tied by the outlook for inflation even if pork prices continue to rise in the coming months.

In addition, the producer price index fell further into negative territory in August, meaning factories are having to discount their products to sell them to wholesalers and retailers.

Core inflation [excluding food and energy] is trending lower, while the continuous drop in producer inflation reflects insufficient demand [due to the weak economy]

Liu Xuezhi

“Core inflation [excluding food and energy] is trending lower, while the continuous drop in producer inflation reflects insufficient demand [due to the weak economy],” Liu said.