BEIJING : China's central bank has plenty of reasons to loosen policy as deflationary pressures in the economy deepen, but record credit growth is likely limit the extent of any monetary support it's able to provide.
Despite the bounce in growth, consumer price inflation is slowing sharply, and factory gate prices are in free fall, increasing pressure on the People's Bank of China to cut rates or release more liquidity into the financial system. "There is still room to cut rates and RRR, but the effectiveness cannot be overestimated," said Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science.
Retail sales did outpace industrial output in March. But analysts say that is largely due to last year's low base caused by COVID-19 curbs that hit consumers the hardest, rather than underlying household demand. "There is limited room for the PBOC to play its part in reviving household income expectations, as it may require a more holistic approach to reboot confidence in job security," said Tommy Xie, China economist at OCBC Bank.