China should focus on fighting deflationary pressure, former central bank governor says

cnbc.com:

SHANGHAI — China's policymakers need to focus on boosting domestic demand, Yi Gang, former head of the People's Bank of China, said Friday at the Bund Summit in Shanghai.

«I think right now they should focus on fighting the deflationary pressure,» Yi said, adding that «the key word is: how to improve domestic demand, how they can successfully deal with the situation of the real estate market as well as the local government debt problem, and influence the confidence of society.»

«At this point, proactive fiscal policy and accommodative monetary policy are important,» he said.

In contrast to high inflation in the U.S. and Europe, China's consumer prices fell in 2023 and have only picked up marginally so far this year as domestic demand remains lackluster.

The latest CPI read, due out on Monday, is expected to tick up from 0.5% year-on-year growth in July to 0.70% in August, according economists polled by Reuters. That would still be only the fastest since February's 0.7% CPI increase.

Yi said he expected the consumer price index to «converge above zero by the end of the year,» while the producer price index would likely reach zero, after negative prints in recent months.

The core CPI, which strips out food and energy prices, rose by 0.4% in July from a year ago, down from 0.6% in June and May.

Yi was PBoC governor from March 2018 to July 2023. Pan Gongsheng is the current head of China's central bank.

Zou Lan, director of the PBoC's monetary policy department, told reporters Thursday the central bank still had room to lower the reserve requirement ratio, which determines the amount of cash banks need to have on hand. It is just one of the PBoC's several monetary policy tools.

In July, Chinese policymakers announced major