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Overcapacity will keep inflation near zero

Most analysts expect China’s inflation rate to rebound to around 2% by 2026. In contrast, we think that persistent imbalances between supply and demand will keep it close to zero for the foreseeable future. This will make it harder to manage China’s high debt burden and, coupled with slowing trend growth, suggests that the PBOC will be forced to lower interest rates further over the medium-term.

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