Song Yu, an economist at Goldman Sachs Group Inc., comments on China’s decision to lower interest rates for the first time since 2008. Song gave the comments in a note today.
“We believe the cut is a clear and strong signal to the market of the loosening policy stance. It reflects the concerns of the top leadership on slowing economic growth and the relatively benign view on inflation.
‘‘By now, the May data is already compiled, though not publicly announced. It is likely this data was still be on the weak side. We still believe May activity data would be incrementally better than it was in April, but probably is still deemed to be too weak by senior policymakers. We think the rate cut could help to alleviate the financial burdens of firms and boost demand for loans.
‘‘We believe interest rates will be cut again later in the year, likely in the third quarter in 2012. We expect multiple required reserve-ratio cuts, which can happen at any time. We reiterate the quantity of liquidity holds the key, and we expect the monetary authorities to be on the relatively loose side of policymaking.’’
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