Sliding Chinese stock prices and currency have rattled global markets and prompted a flurry of policies and intervention by authorities to steady the world’s second-biggest economy.
Earlier, New Zealand’s central bank governor Graeme Wheeler said the yuan devaluation had left them concerned about the risk China may let it slide further.
“We’ve seen authorities basically say they want to stabilize the renminbi, but if there were to be a very substantial depreciation in the renminbi it would certainly export deflation around the rest of the world, so everybody is looking closely at China,” he said at a press briefing following an interest rate cut in New Zealand.
The deflation threat was underlined by data showing that Chinese manufacturers cut prices at their fastest rate in six years, with the producer price index (PPI) down 5.9 percent in August from a year earlier, though consumer prices are rising for now.
“The risk for China is still deflation, not inflation,” said Kevin Lai, chief economist for Asia, excluding Japan, at Daiwa.
“PPI deflation will eventually filter down to affect CPI, and aggregate demand will continue to be weak,” he added.
A growing worry for overseas central banks like the Reserve Bank of New Zealand (RBNZ) is that falling Chinese factory gate prices coupled with a weaker yuan mean the price of exports from China will fall sharply, feeding downward price pressures into their economies.
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