Fighting Deflation: Production Curbs or Rate Cuts?

China’s economy is slowing and facing renewed deflationary pressures, and the central bank has been reluctant to reduce interest rates because of concerns about inadvertently supporting the property sector. One of the most important factors influencing the duration and extent of deflationary forces will be the severity of production restrictions in highly polluting industries, which Beijing has used in recent years both to boost output prices and for environmental objectives. While these production restrictions are slightly more intense this year, weakening demand conditions suggest that deflationary forces will persist and more monetary easing steps will still be necessary.

Posted November 5, 2019
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