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The second rate cut this year made by China’s central bank yesterday to boost the sagging economy came sooner than expected, but it has still more room for further reductions, say experts.
“The rate cuts (this year) came a little bit earlier than what the market expected,” Mr Li Huiyong, chief macroeconomic analyst for Shenyin & Wanguo Securities, said.
“I think a declining inflation level gives more room for lowering the interest rates and it reflects that economic growth is not looking that good in the second quarter,” he told the state-run Xinhua news agency.
In a surprise move, the People’s Bank of China (PBOC) had yesterday cut the benchmark interest rate for the second time this year as the world’s second largest economy showed signs of slowing down further in the second quarter.
It has reduced the rate for one-year deposits by 25 basis points (0.25 per cent) and for one-year lending by 31 basis points (0.31 per cent).
The move came less than a month after the rate cuts announced on June 7, when the benchmark rates were slashed by 0.25 per cent in their first cuts since December 2008.
The central bank also brought down the lower limit for lending rates to float to 70 per cent of the benchmark rate from 80 per cent announced in June, stepping up its bid to liberalise interest rates.
Debt crisis
The European Central Bank too eased its monetary stance, as part of efforts to boost the fortunes of the region reeling under a severe debt turmoil.
China’s gross domestic product (GDP) growth had moderated to nearly a three-year low of 8.1 per cent in the first quarter and is widely expected to have slowed for the sixth straight quarter for April-June period.
“With the second rate cuts in less than a month, the central bank fully delivered its intention of maintaining economic growth,” Mr Guo Tianyong, a professor from the Central University of Finance and Economics said.
China's GDP growth
China’s economy will bottom out in the second quarter with a year-on-year growth of 7.5 per cent, international investment bank Barclays Capital said in a report on Thursday.
The National Bureau of Statistics is expected to release next week a string of economic data, including the GDP for the second quarter, and the consumer price index (CPI) for June.
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