Further easing seen after China rate cut
What you need to know:
- Previously, the government had used what it called “targeted measures” including limited cuts in reserve requirements — the amount of funds banks must put aside — and two fund injections into banks for re-lending totalling 769.5 billion yuan ($126 billion) to boost the economy.
SHANGHAI, Tuesday
After months of modest stimulus actions to try to keep the world’s second largest economy on track, China has fallen back on one of the strongest weapons in its arsenal — an interest rate cut — and analysts say more easing is on the way.
In the first such move in more than two years, China’s central bank cut the benchmark one-year lending rate by 0.40 percentage points to 5.60 per cent and trimmed the one-year deposit rate by 0.25 percentage points to 2.75 per cent.
The change came as a surprise, sending European and Asian stock markets higher, but analysts say it will not be enough on its own to arrest China’s slowing growth.
Chief Asia economist for Capital Economics Mark Williams said the announcement last Friday marked a “major — and largely unanticipated — change of tack” by the People’s Bank of China, which until now had shunned an across-the-board rate cut.
TARGETED MEASURES
Previously, the government had used what it called “targeted measures” including limited cuts in reserve requirements — the amount of funds banks must put aside — and two fund injections into banks for re-lending totalling 769.5 billion yuan ($126 billion) to boost the economy.
Those steps were billed as a “mini-stimulus”.
But economic growth eased to 7.3 per cent in July-September, the worst quarter since the depths of the global crisis in early 2009, throwing into peril the government’s expansion target of “around” 7.5 per cent for the full year.
“This is a clear step up in the intensity of monetary policy easing and is likely a response to the strong headwinds from the property market correction and the limited potency of previous measures,” brokerage firm Nomura said.
China’s economy has been slammed by a deflating property bubble and weak export growth, as well as a government crackdown on corruption.
“The Chinese economy has been under downward pressure since the beginning of this year,” Premier Li Keqiang told Chinese and foreign Internet company executives the day before the government announced the rate cut.
The government’s action also comes with the threat of deflation rising after the consumer price index remained stuck near a five-year low of 1.6 per cent in October, and a lukewarm reception earlier this month for a scheme allowing foreign investors greater access to mainland stocks. (AFP)
