SHANGHAI: China’s yuan eased against the dollar on Monday as persistent deflationary pressure suggested more policy easing measures are needed to boost sluggish demand in the world’s second-largest economy.
Official data showed on Monday that China’s consumer inflation hit a five-month low in November, while producer price deflation continued, even after a slew of recent stimulus efforts.
“CPI inflation surprised on the downside. The deflationary pressure in the economy is persistent,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“Economic activities stabilized recently but the recovery is not strong enough to boost inflation yet. It requires a much stronger fiscal push to get China out of the deflationary environment.”
As of 0248 GMT, the onshore yuan was 0.05% lower at 7.2766 to the dollar, extending losses after it posted its 10th straight weekly drop last week, the longest such losing streak since 2018. Its offshore counterpart traded at 7.2832 yuan per dollar.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1870 per dollar, and 757 pips firmer than a Reuters’ estimate of 7.2627.
The PBOC has been setting its official midpoint fixings on the firmer side of the key 7.2 per dollar level and stronger than market projections since mid-November, which traders and analysts widely interpret as a sign of rising unease over recent yuan declines.
The Chinese currency has faced renewed depreciation pressure, weighed down by US President-elect Donald Trump’s tariff threats and monetary policy divergence between China and the United States. The onshore yuan has fallen about 2.4% to the dollar since Trump’s sweeping election victory on Nov. 5.
“USD/CNY should be capped below 7.30 in the short run, with the PBOC’s daily fixing below 7.20,” analysts at Barclays said in a note.
Barclays said authorities will want to keep the exchange rate stable heading into China’s annual Central Economics Work Conference (CEWC) on Dec. 11-12, during which leaders will discuss the growth target, headline budget deficit and planned central and local government bond insurance quotas for 2025.
The key meeting usually maps out the economic agenda for the next year. Some analysts suspect there won’t be any big stimulus proposals or targets until there’s more clarity on what Donald Trump plans to do about trade tariffs after he assumes office in January.
Sources told Reuters that Chinese government advisers were recommending that Beijing should maintain an economic growth target of around 5.0% for next year, pushing for stronger fiscal stimulus to mitigate the impact of expected US tariff hikes on the country’s exports.
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