China's CPI Growth Slows To at least one.8 percent In April

April consumer prices rose 1.8% vs. last year, down from 2.4% in March and also the smallest gain in 18 months amid slower economic growth.

Factory-level prices fell 2% vs. a year earlier, the 26th straight decline. The cost data spurred requires more aggressive gov’t efforts to help the world’s No. 2 economy. Beijing has been cautious about big stimulus measures following a 2008 gov’t spending boom resulted in many bad investments and debts for cities and provinces.

As the chance of deflation rises and the real activities remain lukewarm, we feel that it’s here we are at china central bank to look at easing monetary policy soon.

While the People’s Bank of China (PBoC) can use the short-term open market operations (OMOs) to keep accommodative market conditions, there is no evidence that lowered money market rates have also been translated into lowered lending rates.

The weighted average lending rates within the first quarter 2019 was 7.18%, only 2 basis points lower than your fourth quarter 2019, in spite of favorable market liquidity conditions during the same period.

As such, it is time for the Chinese central bank to cut reserve requirement ratio (RRR). Large and mid-sized banks are still subject to 20% reserve requirement ratio, in addition to a stringent loan to deposit ratio of 75%.

We believe that a decline in RRR along with a reset from the prime lending rate recently established by the PBoC can meaningfully lower the lending rates facing Chinese enterprises.