China's CPI inflation for November increased to 1.5% year on year from 1.3% in previous month. The CPI inflation in November is mainly driven by the food prices as it inched up to 2.3 year on year against 1.9% in previous month. On the other hand, PPI deflation remained steady in the negative territory with a growth rate of -5.9% year on year.
Due to the soften inflation outlook, further monetary easing by the central bank is foreseen.
"We see PBoC will cut interest rate by 25bps in Q1 2016, and the multi-cut in the reserve requirement ratio can be expected next year as well. In the meantime, the fiscal policy would be more proactive to counter the headwinds in the economy", states Commerzbank.
Moreover, fiscal expansion by the Chinese government is foreseen in the coming years as migrant farmers in the small cities require subsidy for buying properties. Therefore, due to fiscal and monetary expansion, further weakness in CNY/CNH exchange rate is envisaged in near future, added Commerzbank.
