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China has still more room for rate cuts: Experts

Last Updated: Friday, July 6, 2012 - 12:02

Beijing: 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," 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 said told state run Xinhua news agency.

In a surprise move yesterday, the People's Bank of China (PBOC) cut 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 percent) and for one-year lending by 31 basis points (0.31 percent).

The move came less than a month after the rate cuts announced on June 7, when the benchmark rates were slashed by 0.25 percent in their first cuts since December 2008.

The central bank also brought down the lower limit for lending rates to float to 70 percent of the benchmark rate from 80 percent announced in June, stepping up its bid to liberalise interest rates.

The European Central Bank too eased 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 a nearly a three-year low of 8.1 percent 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," Guo Tianyong, a professor from the Central University of Finance and Economics said.

China's economy will bottom out in the second quarter with a year-on-year growth of 7.5 percent, international investment bank Barclays Capital said in a report 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.

Guo forecast annual CPI growth to slow to 2.5 percent after hitting a 17-month low of 3 percent in May.

After the latest cuts, the one-year deposit interest rate will fall to 3 percent while the one-year loan interest rate will be lowered to 6 percent.


First Published: Friday, July 6, 2012 - 12:02
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