China May Delay Rate Rises Until 2012 as Market `Chaos' Threatens Exports
China May Delay Rate Rises Until 2012 on Financial ‘Chaos’
Qilai Shen/Bloomberg
The cost of pork, a Chinese staple, rose 57 percent in July from a year earlier, highlighting the risk that rising prices will lead to social instability.
The cost of pork, a Chinese staple, rose 57 percent in July from a year earlier, highlighting the risk that rising prices will lead to social instability. Photographer: Qilai Shen/Bloomberg
Aug. 10 (Bloomberg) -- Diana Choyleva, a Hong Kong-based economist at Lombard Street Research Asia, talks about China's economy and central bank monetary policy. China’s trade surplus surged to $31.5 billion in July, the highest level in more than two years, as exports exceeded estimates. Choyleva, whose interview took place before China released its trade data, spoke with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Aug. 10 (Bloomberg) -- Johanna Chua, Hong Kong-based head of Asian economic research at Citigroup Inc., talks about China's economy, central bank monetary policy and currency. Chua also discusses Standard and Poor's decision to downgrade U.S. debt, and Federal Reserve monetary policy. She speaks with Rishaad Salamat, Susan Li and Phillip Yin on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Tao Wang, head of China economic research at UBS AG, talks about the outlook for the nation's economy and central bank monetary policy. China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing as risks to the global economy mount. Wang also discusses Standard & Poor's decision to downgrade U.S. debt, China's currency policy and Treasuries holdings. She speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Bob McKee, chief economist at Independent Strategy Ltd., talks about the outlook for Chinese inflation, which accelerated to the fastest pace in three years in July. He speaks with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Minggao Shen, an analyst at Citigroup Inc. in Hong Kong, talks about China's economy, central bank monetary policy and holdings of foreign reserves. Peter Lewis, head of Asian equities and equity derivatives at MF Global Hong Kong, also speaks. Shen and Lewis speak with Susan Li and Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Benjamin Pedley, head of investment strategy for North Asia at HSBC Private Bank, talks about China's economy and central bank monetary policy. China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing as risks to the global economy mount. Pedley also discusses the global economy, financial markets, and Federal Reserve monetary policy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Andy Xie, formerly Morgan Stanley's chief Asia economist in Hong Kong and now an independent economist, talks about China's economy, the nation's holdings of U.S. debt, and central bank monetary policy. Xie, who also discusses the U.S. economy and Federal Reserve monetary policy, speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
China May Delay Rate Increases Until 2012
Nelson Ching/Bloomberg
China’s consumer prices climbed 6.5 percent in July from a year earlier, the fastest pace since 2008, a report from the Beijing-based National Bureau of Statistics showed yesterday.
China’s consumer prices climbed 6.5 percent in July from a year earlier, the fastest pace since 2008, a report from the Beijing-based National Bureau of Statistics showed yesterday. Photographer: Nelson Ching/Bloomberg
China May Delay Rate Increases Until 2012
Doug Kanter/ Bloomberg
China’s inflation has peaked and “food prices are already correcting,” said Wang Tao, a Hong Kong-based economist for UBS AG.
China’s inflation has peaked and “food prices are already correcting,” said Wang Tao, a Hong Kong-based economist for UBS AG. Photographer: Doug Kanter/ Bloomberg
China may join Asian nations from South Korea to India in delaying interest-rate increases after the nation’s leaders urged global cooperation to stabilize financial markets.
The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.
The U.S. Federal Reserve pledged yesterday to keep interest rates near zero through mid-2013 and use other policy tools “as appropriate,” addressing the slump in confidence that triggered a global stock rout. China’s State Council said “relevant nations” should adopt responsible fiscal and monetary policies to maintain investors’ confidence, in a statement yesterday evening after a meeting chaired by Premier Wen Jiabao.
“We have an increased risk of a global recession, so China will not raise rates now,” said Wang Tao, a Hong Kong-based economist for UBS AG, who previously worked for the International Monetary Fund. China’s inflation has peaked and “food prices are already correcting,” she said.
China’s consumer prices climbed 6.5 percent in July from a year earlier, the fastest pace since 2008, a report from the Beijing-based National Bureau of Statistics showed yesterday. That was more than the 6.4 percent median estimate in a Bloomberg News survey.
Industrial Production
A slower-than-estimated 14 percent gain in industrial production added to signs that moderating economic growth may assist in limiting price pressures. Sliding commodity costs may also help.
The State Council’s statement dropped previous language describing the fight against inflation as the nation’s top priority and policy makers are likely in a “wait-and-see mode,” Lu Ting, a Hong Kong-based economist at Bank of America Merrill Lynch said in an e-mailed note.
U.S. stocks jumped the most in more than two years, rebounding from the worst drop since 2008, after the Federal Reserve statement. Shanghai’s stock index was little changed yesterday after a two-day plunge of almost 6 percent.
Facing ‘Chaos’
“Usually the Chinese government stops doing anything when there’s chaos around, that’s the instinct,” said Andy Xie, an independent analyst who was formerly Morgan Stanley’s chief Asia economist. Interest rates will be “on hold for the time being, until global markets are recovering,” he told Bloomberg Television in Hong Kong.
The nation’s key one-year lending rate is 6.56 percent after three increases this year, the most recent in July.
The cost of pork, a Chinese staple, rose 57 percent in July from a year earlier, highlighting the risk that rising prices will lead to social instability. In signs of unrest this year, a dispute between a street vendor and authorities in Guangdong province in June led to protests during which crowds overturned cars and threw bottles at police.
For the auto industry, inflation may mean slower sales growth, said Matthew Tsien, executive vice president of General Motors Co.’s China unit.
“What it will lead to in the near term may be more modest levels of growth, maybe even flat growth for a period of time,” Tsien said in an interview in Chengdu yesterday.
Tightening ‘Interrupted’
Group of Seven nations and the G-20 pledged this week to take all necessary measures to stabilize financial markets and foster economic growth in a bid to head off a collapse in investor confidence. China, the world’s biggest exporter, relies on demand in the U.S. and Europe.
Chinese officials told the International Monetary Fund last month that the nation’s monetary tightening since the global financial crisis had been “interrupted” for about six months by heightened sovereign-debt risks in Europe.
UBS, Societe Generale SA, Nomura Holdings Inc., HSBC Holdings Plc, Standard Chartered Bank, Citigroup Inc., Daiwa Securities Capital Markets Ltd. and Mizuho Securities Asia Ltd. expect no rate increases in China this year, while Royal Bank of Canada and Barclays Capital still see a move as likely.
Ten of 15 economists expect South Korea’s central bank to leave the benchmark rate unchanged at 3.25 percent after its monthly monetary policy committee meeting, while five forecast a quarter-point increase. Goldman Sachs Group Inc., DBS Bank Ltd., Barclays Capital, and Moody’s Economy.com dropped calls for an increase after equity markets plunged.
Suppressing Consumption
South Korea’s consumer prices rose 4.7 percent last month from a year earlier, the biggest gain in four months.
“The sharp decline in the equity markets themselves, if not reversed soon, could generate its own downturn momentum, suppressing consumption and delaying or cutting back investments,” Goohoon Kwon, a Seoul-based economist at Goldman Sachs, wrote in a note after pulling his call for an interest- rate increase. “Current market conditions point to high risks of less hikes or even rate cuts.”
In India, a rally in bonds has signaled that investors no longer expect an interest-rate increase as soon as next month. R. Gopalan, secretary of economic affairs at the Finance Ministry, said Aug. 7 that an easing of commodity prices as the global economy slows may cut inflation.
“The probability of a rate hike from the Reserve Bank of India has become very, very low,” said Manish Wadhawan, Mumbai- based head of interest-rate trading at HSBC Holdings Plc. “Nobody’s expecting a rate cut in the near future, but it could very well be a pause situation.”
Indian Rate Moves
The Reserve Bank of India has raised its lending rate 11 times since the start of 2010, the most of any monetary authority among Asia’s major economies. Increases in wholesale prices, which the central bank uses to track inflation, have held above 8 percent since the start of 2010.
Indonesia’s central bank left interest rates unchanged yesterday for a sixth month, maintaining the reference rate at 6.75 percent, while Malaysia and the Philippines last month opted to ask banks to set aside more cash as reserves.
Sentiment has also swung on the likelihood of higher borrowing costs in Australia. The Reserve Bank of Australia will maintain borrowing costs at 4.75 percent until the first quarter of next year, according to the median of 22 estimates in a Bloomberg News survey. A poll six days ago showed the consensus was for a quarter percentage-point increase on Nov. 1.
“In unprecedented global circumstances, the RBA looks prepared to tolerate above-target inflation,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney. “The need for higher rates may return next year but is highly conditional on stabilization and improvement in the global backdrop.”
To contact the reporter on this story: Lifei Zheng in Beijing at lzheng32@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net;
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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