The Chinese yuan remained under pressure last week and ended it slightly lower against the broadly stronger US dollar. Data confirmed that China experienced the longest deflationary period since 2009, registering three months of declining consumer prices in a row. In December, the CPI index fell by 0.3%. The fact that this was a smaller decline than the month previous (-0.5%), and slightly more limited than expected (-0.4%), has not allayed concerns about domestic demand. Most other releases, including PPI inflation and financial data, also failed to provide optimism, although trade activity did, at least, pick up at the end of the year.
Amid concerns about the economy's weak performance, the PBoC injected CNY 216 billion in fresh medium-term funds into the banking system today, but contrary to expectations it did not lower the 1-year MLF rate. Looking ahead, attention will be on the year-end data package to be released on Wednesday. GDP growth is particularly worth watching, as it could set the tone for sentiment toward China in 2024.
