Shen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd. comments on China’s decision to cut interest rates for the first time since 2008.
“The interest rate cut, which is the first time since 2008 and does not fall in a weekend or holiday as usual, was a surprise to us as well as the market.”
“In my view, it likely reflects that the May macroeconomic indicators, to be released on 9 and 10 May, will be very weak, and point to increasing risk for hard-landing. Top policy makers should have already seen the data, and appeared to be very concerned.”
“The interest rate cut was not asymmetric as market expected, reflecting that underlying inflationary pressure has been significantly reduced amid sub-potential growth. In May, inflation rate will likely drop to below 3.25%YoY, reducing the concern for negative real interest rate, which drive potential depositors away from the banking system to invest in the asset markets.”
“The interest rate cut today stands for the beginning for more decisive easing from the government, in order to support the economy at the brink of hard-landing in Q2. We expect that more easing will be announced in the coming weeks, especially policies supportive of infrastructure investment and housing policy easing.”
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