Citigroup: The rise in oil prices is unlikely to change China's deflationary trend; it is expected that the policy interest rate will be lowered by 10 basis points in the second half of the year

Citigroup published a research report stating that due to rising geopolitical risks, the situations in Iran, Israel, and the United States pose a risk of rising oil prices. The bank estimates that a 10% increase in oil prices could raise China's CPI by about 0.2% and PPI by about 1%. However, the bank believes this is unlikely to change the overall deflationary trend in China. Considering China's oil imports of $325 billion last year, it is estimated that a 10% increase in oil prices could lead to a 7.7% decline in its current account balance and affect GDP growth by less than -0.1 percentage points.

The bank stated that concerns about inflationary pressures driven by oil, which may suppress monetary easing policies, seem premature at this stage, and continues to expect a 10 basis point reduction in policy rates and a 50 basis point cut in the reserve requirement ratio in the second half of the year