Analysts: PBOC move may boost recovery
By Wang Yanlin |
June 9, 2012, Saturday
|
Print Edition
Print Edition
CHINA'S economic performance in May may be weaker than expected, but the interest rate cuts, effective yesterday, can increase the likelihood of a recovery in the second quarter, analysts said.
"It is a bit surprising that the central bank took the move of reducing interest rates before the release of May data on Saturday," said Lu Zhengwei, an analyst at the Industrial Bank. "It indicates the data may be as disappointing as in April, which probably triggered policymakers to act in haste."
Some analysts had forecast China's economy may exhibit signs of stabilization in May with industrial production recovering slightly, retail sales strengthening by a small margin, and fixed-asset investment largely unchanged.
Such a performance, if proved true, would be much better than the data in April when growth was in a free fall. But the unexpected rate cuts indicated uncertainty.
On Thursday evening, the People's Bank of China announced it was cutting the benchmark one-year lending and deposit rates by a quarter of a percentage point, the first such move since December 2008.
Also, China accelerated the liberalization of the rates by allowing banks to set their own deposit rate by as much as 1.1 times the benchmark, and set lending rate by as low as 80 percent of the benchmark, 10 percentage points lower than previously.
"China has now formally entered a stage of policy easing from that of policy fine-tuning," said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. "The rate cuts will not only help lower borrowing costs for Chinese firms, but also confirm a stage of outright monetary policy easing that can boost investor confidence."
Zhou expected the cuts to reduce the interest rate burden on both companies and consumers by roughly 145 billion yuan (US$23 billion).
Unlike some economists who expect at least one more rate cut this year, Nomura economist Zhang Zhiwei said there will not be a further interest rate reduction for the rest of 2012.
"The announced interest rate cuts and liberalization are already quite strong measures and may affect the banking system negatively," Zhang added.
"It is a bit surprising that the central bank took the move of reducing interest rates before the release of May data on Saturday," said Lu Zhengwei, an analyst at the Industrial Bank. "It indicates the data may be as disappointing as in April, which probably triggered policymakers to act in haste."
Some analysts had forecast China's economy may exhibit signs of stabilization in May with industrial production recovering slightly, retail sales strengthening by a small margin, and fixed-asset investment largely unchanged.
Such a performance, if proved true, would be much better than the data in April when growth was in a free fall. But the unexpected rate cuts indicated uncertainty.
On Thursday evening, the People's Bank of China announced it was cutting the benchmark one-year lending and deposit rates by a quarter of a percentage point, the first such move since December 2008.
Also, China accelerated the liberalization of the rates by allowing banks to set their own deposit rate by as much as 1.1 times the benchmark, and set lending rate by as low as 80 percent of the benchmark, 10 percentage points lower than previously.
"China has now formally entered a stage of policy easing from that of policy fine-tuning," said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. "The rate cuts will not only help lower borrowing costs for Chinese firms, but also confirm a stage of outright monetary policy easing that can boost investor confidence."
Zhou expected the cuts to reduce the interest rate burden on both companies and consumers by roughly 145 billion yuan (US$23 billion).
Unlike some economists who expect at least one more rate cut this year, Nomura economist Zhang Zhiwei said there will not be a further interest rate reduction for the rest of 2012.
"The announced interest rate cuts and liberalization are already quite strong measures and may affect the banking system negatively," Zhang added.
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