PBoC likely to cut rate further

In China, PPI inflation posted negative growth rate of -5.9% yoy in October, which is straight contraction for 44 months. The producer goods index increased slightly to -7.6% from  -7.7% previously.

Similarly, the CPI inflation of the economy for October released yesterday stood at 1.3% year on year, which was 1.6% in the previous month. At a disaggregate level, food inflation dipped to 1.9% y/y from 2.7% y/y in September, similarly, non-food items dropped to 1.1% from 1.4% previously. 

It is believed that, if the deflation prevails for long time, then more easing is expected. Barclays foresees one more RRR cut in Q4 2015 due to their expectation of elevated capital outflows.

At the same time, another rate cut is likely if inflation continue to fall further.

"We maintain our forecast for two benchmark rate cuts of 25bp each in H1 2016 given expected continued economic headwinds with growth slowing to 6% in 2016. We also look for two RRR cuts in H1 2016 to support liquidity and lending", states Barclays.