Retreat in China's PMIs heightens calls for policy easing

Mon Sep 1, 2014 12:30am EDT
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By Koh Gui Qing

BEIJING (Reuters) - Growth in China's vast factory sector cooled in August as foreign and domestic demand slowed, two surveys showed on Monday, spurring new calls for more policy easing to prevent the economy from stumbling once more.

A purchasing managers' index (PMI) published by the National Bureau of Statistics fell from a 27-month high to 51.1 in August, slightly less than forecast as factories shed jobs for at least the 24th consecutive month.

A separate, private PMI was more torpid. The final HSBC/Markit PMI eased to 50.2 in August, close to the preliminary reading of 50.3 and only a shade above the 50-point mark demarcating an expansion in activity from a contraction.

The declines in both PMIs prompted some analysts to re-state their support for more policy action to lift the fading growth momentum in the world's second-biggest economy.

"If we now start to see a serious challenge to growth, the pressure to do more will intensify," said Louis Kuijs, an economist at RBS.

He said the central bank could cut interest rates or reduce the amount of reserves that banks must hold as deposits to re-stoke the economy.

Mainland stocks rose marginally after the PMIs, as investors bet that poor economic data may force the central bank to loosen policy and increase liquidity, to the benefit of share prices.

But swap traders had not yet priced in a rate cut. The rate swap for the one-year deposit rate CNAMAD2YF= was priced at 2.91 percent, close to the current 3 percent interest rate level. Rates would fall to 2.75 percent should authorities cut them by 25 basis points. [ID:nL3N0QW17D]   Continued...

A worker installs rubber onto the windows of the doors along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014. REUTERS/Stringer