Weak Chinese data calls for further stimulus

Peoples Bank of China (PBOC) since late last year has been providing policy stimulus, however that so far yielded no significant turnaround of weakening Chinese economy.

• Latest Manufacturing PMI indicates further weakness in Chinese economy which might lead to further reduction in GDP growth. Growth rate dropped to multiyear low at 7% in first quarter of 2015.

Key highlights of PMI report -

• HSBC manufacturing PMI declined at sharpest rate in 13 months, currently at 48.9 from April, down from 49.6 in March.
  
  
• Production level stagnated, while new orders declined at strongest pace resulting from weak domestic demand.

• New export orders rose marginally, however weak domestic demand is leading to sharp cut in prices and drop in employment.

• Deflationary pressure in China remains persistent as both input and output prices declining sharply.

Probability is high that PBOC might have to ease further.

PBOC has already provided reserve ratio cut, lending rate cut and reduced margin to 40% from 60% for second house purchase, however more might be on the way.