90 seconds at 9 am: Chinese import growth slumps to 0.3% in April; Bank of India intervenes to support rupee; Germany says will tolerate higher inflation

 Chinese import growth slumps to 0.3% in April; Bank of India intervenes to support rupee; Germany says will tolerate higher inflation

Here's my summary of the key news overnight in 90 seconds at 9 am, including news from China that import growth in April slumped to just 0.3%.

Export growth of 4.9% was also weaker than the 8-11% expected and suggests the Chinese economy is slowing much faster than many had predicted.

This is crucial for New Zealand and Australia given China is our largest trading partner collectively. The swift decision by China's leadership to stimulate its economy in late 2008 and early 2009 helped cushion the impact of the Global Financial Crisis on New Zealand and Australia.

The rapid slowing of import demand in China has triggered calls for more Chinese monetary stimulus, but there are now doubts that China can repeat its stimulus. See more here at Bloomberg.

There is uncertainty about who is in charge in China as the communist leadership prepares for a once-a-decade leadership change. The Bo Xilai scandal, where one high profile leadership contender was sacked after he was accused of trying to cover up a murder, has dashed hopes for a smooth transition.

Meanwhile, in another sign of trouble in the broader Asian economy, the Bank of India was forced to intervene overnight to bolster the rupee from its record lows vs the US dollar. It ordered all Indian companies to repatriate half of their foreign profits back into rupee to lift the currency. See more here at Bloomberg.

Elsewhere, Germany's finance minister Wolfgang Schauble has backed a Bundesbank comment that Germany should allow a temporary rise in inflation into the 2-3% range, which is above the 2% target set by the European Central Bank. See more here at thelocal.de.

This is increasingly the 'muddle-through' tactic being adopted by central banks and governments to try to reduce the debt burden crushing the life out of developed economies. Central banks are allowing or encouraging inflation to rise above their targets and above the level of short and long term interest rates. This then reduces the real value of the debt and is an effective default by stealth that punishers savers and protects borrowers.

There is now an active debate going on in America where the central bank has held short term interest rates near zero from 2008 til 2014, but is being encouraged to boost inflation to well over 2%.

The Bank of England reinforced this strategy overnight when it kept its official rate at 0.5% and allowed its quantitative easing or money printing programme to expire. Britain's inflation rate is currently at 3.6%, meaning savers are seeing the real value of their savings eroded over time. See more here at Washington Post.

A similar tactic, which is known as Financial Repression, was used during the late 1940s and 1950s by America and Europe to reduce the value of their war debts.

Elsewhere overnight, US and European stock were mildly higher overnight on conflicting news about the European debt crisis. The New Zealand dollar was broadly steady around 78.5 USc.