You are here

Economists see steepest China rate cuts this year since 2008

MARKETSCHINA150518.jpg
China will cut interest rates this year by the most since the global financial crisis as policy makers prioritise growth amid signs of a further economic slowdown.

[TAIPEI] China will cut interest rates this year by the most since the global financial crisis as policy makers prioritise growth amid signs of a further economic slowdown.

The People's Bank of China will reduce the one-year lending rate by another 25 basis points to a record 4.85 per cent by year-end, bringing the cumulative cuts in 2015 to 75 basis points, according to the median estimate in a Bloomberg survey of economists. The amount of cash major banks must set aside as reserves will be lowered by 1 percentage point to 17.5 per cent, the least since 2010, the survey shows.

China has stepped up stimulus this quarter in Asia's largest economy as disappointing exports and manufacturing threaten the 7 per cent annual growth objective. With inflation at half the official target, real interest rates when adjusted for the drop in producer prices have hovered near the highest since 2009, even as the central bank continued to slash borrowing costs and reserve requirements.

"Further policy support is still needed to stabilise China's growth momentum and arrest the passive tightening of monetary conditions," Wang Tao, an economist at UBS Group AG, wrote in a research note on Tuesday.

Analysts polled predict the economy will expand 6.9 per cent this quarter, down from the 7 per cent forecast in April. They also see the PBOC lowering reserve requirements by 0.5 percentage point by June 30 to 18 per cent. The survey was conducted May 14 to May 19.

BLOOMBERG