Liu Shijin, an advisor to the People’s Bank of China (PBOC) warned on Monday, the Chinese economy could enter a period of ‘quasi-stagflation’.

Key quotes

“China’s economy could enter a period of “quasi-stagflation” with relatively slow growth and excessively high producer-price inflation.”

“Such a scenario is “very likely” if demand remains weak, producer prices stay high, corporate profits are squeezed, and existing risks in the economy are “released too quickly.”

“The possibility needs close attention – if it happens it will last into 2022.”

Meanwhile, Reuters reports that “a between-the-lines reading of the PBOC’s latest quarterly monetary policy report suggests China’s central bank is ostensibly leaning toward easing.”

Market reaction

USD/CNY is trading modestly flat at 6.3831, as investors digest the latest PBOC no-rate change decision and the latest weaker yuan midpoint.

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