Economists forecast one more Chinese interest-rate cut this year

[BEIJING/HONG KONG] Economists are forecasting another cut in China's benchmark one-year lending rate in the third quarter as policy makers step in to cushion the nation's economic slowdown.

The lending rate is expected to fall 0.25 percentage point to 4.85 per cent in the third quarter, according to the median of 23 economists. Analysts also expect banks' reserve ratios will be lowered, the median of 24 analysts showed.

The survey follows China's third interest-rate cut in six months announced Sunday after exports and imports slid in April, underscoring the economy's struggle to meet Premier Li Keqiang's 2015 growth target of about 7 per cent. April consumer prices remained subdued while producer prices fell for a 38th month, leaving scope for additional policy measures.

"The government still has plenty of room for policy easing," wrote economists led by Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, in a note Tuesday.

Economists also cut their forecast for the benchmark one- year deposit rate by 0.25 percentage point to 2 per cent for the third quarter, according to the median estimate of 26 survey respondents. The central bank raised the deposit-rate ceiling to 150 per cent of the benchmark effective Monday, further easing the financial repression that has seen savers effectively subsidise debt-fuelled investment.

Authorities have pursued a multi-pronged easing approach this year, combining rate cuts with lower bank reserve ratios, liquidity injections to banks and efforts to bring down money- market rates.

BLOOMBERG