PBOC adviser calls for bolder stimulus, lower inflation target

PBOC adviser Huang Yiping has made a break from the usual restrained tone at the upper echelons of Chinese authority, with a call for bolder stimulus and a lower inflation target

• Urges more fiscal stimulus and consumption boost
• Warns of “low inflation trap” risk for Chinese economy
• Suggests lowering CPI target to 2%-3% from current 3%
• Rare public critique of Beijing’s conservative economic policies

The info comes via Bloomberg (gtaed).

Huang argues

• for a significant shift in China’s economic policy approach
• the government needs to step up fiscal stimulus and focus more on boosting consumption to avoid a “low inflation trap”.

Key points:

• Current policies too focused on investment, neglecting consumption
• Suggests direct cash transfers to citizens to spur spending
• Calls for easing restrictions on migrant workers settling in cities
• Recommends lowering inflation target to 2%-3% from 3%

The comments come as China’s economy struggles to maintain momentum, with recent data showing growth slowing to its worst pace in five quarters. Consumer prices have been flirting with deflation, highlighting the challenges facing policymakers.

Huang’s public critique is noteworthy given the increasingly sensitive nature of economic discussions in China. The yuan and Chinese equities will be ones to watch as markets digest these comments and gauge the likelihood of a policy shift from Beijing.

This article was written by Eamonn Sheridan at www.forexlive.com.