Weekly Impressions - Deleveraging dynamic blunts the efficacy of China's monetary easings

Central bank communications and actions dominated financial market developments over the past week. The PBOC's monetary easing on Friday brings the cumulative decline in the 1 year benchmark bank lending rate to 165 basis points in the past year. Despite the substantial easing, growth in industrial production, fixed asset investment and total social financing has continued to slow. In this post, I suggest that the deleveraging dynamic continues to weigh on China’s growth prospects and blunt the efficacy of monetary easing. In Europe, the ECB re-iterated that its concerns surrounding growth prospects in emerging markets could have a long-lasting impact on prices, if left unchecked. Its willingness to deliver more monetary accommodation in December sparked a rally in global stock markets. The shift in rhetoric also reflects the fact that core inflation has undershot the ECB's target for most of the past decade, and at present, remains a long way from its target. (VIEW LINK)