Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, comments on China’s decision to cut interest rates for the first time since 2008. The comments were published in an e-mailed note to clients.
The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31 percent from 6.56 percent. Banks can offer a 20 percent discount to the benchmark lending rate, the PBOC said, widening from a previous 10 percent.
“The changes indicate mounting concern in Beijing over the slowdown of growth, and come ahead of Saturday’s data that is likely to show deceleration of output and lower inflation. They amount to an official start of a rate-cutting cycle that we believe will be short and modest - we expect only one more reduction this year, in Q3.
‘‘We expect a boost to demand for lending as a result of the cuts, although the actual impact will be limited given the low demand for credit, and the government will need to do more to support aggregate demand, primarily on the fiscal side. Still, the easing will help stimulate the economy, and makes achieving this year’s growth target more likely. We continue to expect 8 percent gross domestic product growth this year.
‘‘We expect a rise in Chinese equities, in the yuan, especially in offshore markets, and in risk assets in Asia and around the world. Yuan interest-rate swap rates and Chinese government bond yields are likely to fall.’’
To contact the reporter on this story: V Ramakrishnan in Mumbai at email@example.com
To contact the editor responsible for this story: Sandy Hendry at firstname.lastname@example.org