PBOC Action Looms As China Closes Out April With More Mixed Data

By Glenn Dyer | More Articles by Glenn Dyer

So will China’s central bank drop a key interest rate this week for the second month in a row after the final batch of mixed economic data for April was released on Friday?

China’s May decision on the level for its key Prime Loan Rate will be announced Wednesday. It’s currently a high 3.85%, having been cut in April by 20 points. That was the second cut in 2020 after a trim in February.

The cut would come after the industrial output, urban investment and retail sales data for April revealed an economy still struggling to break free from the impact of the POVID-19 pandemic.

China’s industrial production rose by 3.9% year-on-year in April, reversing from a 1.1% fall in March and stronger than forecasts for a rise of 1.5%.

There was an upturn in both manufacturing output (5.0 % vs -1.8% in March) and utilities (0.2% vs -1.6%) while mining production slowed (0.3% vs 4.2%).

Among major industries, output rose for electrical machinery (9%), metal products (8.9%), general equipment manufacturing (7.5%), food manufacturing (7.5%), automotive (5.8%), rubber and plastics (5.2%), pharmaceuticals (4.8%), ferrous metal smelting (4.6%), non-metallic mineral products (4.2%), agriculture (3%), chemical raw materials and products (3.2%).

In contrast, production fell for power equipment (-0.2%). Cement production was marginally lower as well.

Crude steel output edged up by 7% from March (but only 0.1% from April 2019 (see separate story).

Fixed-asset investment dropped 10.3% in the January-April period, compared with a 16.1% fall in the first quarter. Economists had forecast a smaller, 9.5% decline.

Retail sales dropped 7.5% in April, better than the 15.8% decline in March but still worse than the 7% drop expected by the market.

China’s urban jobless rate rose to 6.0% in April, after easing to 5.9% in March.

In February, China’s urban unemployment rate touched a record high of 6.2% as millions of workers couldn’t get back to work due to coronavirus lockdowns.

That has changed, but the small rise last month is a worry. Perhaps that raises the possibility of a rate cut this week?

So the still weak performance suggests that a rate cut could be on the cards on Wednesday, especially after a promise from the head of China’s central bank at the weekend to strengthen monetary policy support for the economy in the fight the hit from the coronavirus pandemic.

People’s Bank of China Governor Yi Gang wrote in an article published in a Communist Party publication that the central bank will put more emphasis on policy flexibility while maintaining financial market stability

He said the PBOC will use policies such as re-lending, rediscount, deferred loan repayments, and improved policy transmission to support the economy and stabilise employment.

The central bank has rolled out a series of easing moves since early February, including cuts in reserve asset requirements and lending rates and targeted lending support for virus-hit firms.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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