BlackRock Investment Institute

Macro insights

China's nuanced policy stance

China’s recent policy loosening – a cut in reserve requirements for most banks – was likely a preemptive move to cushion an expected further slowdown in economic growth, in our view. Further easing may lie ahead, and the tone of an upcoming Politburo meeting, chaired by President Xi Jinping, will provide an important signal. If the president endorses a looser policy stance, the People’s Bank of China (PBOC) looks likely to follow their guidance and loosen policy further. With inflationary pressures easing and what appears to be limited passthrough from producer prices to consumer prices – see chart – policymakers have some room to act.

China inflationary pressures falling

China CPI and PPI annual change starting to roll over

Sources: BlackRock Investment Institute, China National Bureau of Statistics, with data from Haver Analytics. July 2021.

Yet we expect only limited short-term policy easing and see the PBOC remaining hawkish overall. Why? The focus remains on the quality of growth over quantity and a hawkish bias is central to that. Indeed, following the decision on the reserve requirement rate, the PBOC stated that the cut did not represent a fundamental change in the policy stance, potentially signaling that it may have had some reservations about the move.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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