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IHS’s Ren Says Rate Cut Suggests May Numbers May Be Soft

Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd. comments by phone on China’s decision to cut interest rates for the first time since 2008.

“Possibly because the May numbers are still very soft, the government wants to take some pre-emptive moves before the numbers are released. This will help boost sentiments definitely.”

“They still have concerns about inflation and property bubbles, but I think the larger concern has become stability of growth. If you don’t have overall macroeconomic stability, there is no point for you to try and control the housing market bubbles. So providing stimulus is for that purpose as I think stability is paramount now.”

“This was in-line with the broad policy steps they have been taking even with the fiscal stimulus. The government this time around is looking at both a short term boost and longer term structural adjustment. This is just the same as the structural stimulus that they have recently unveiled.”

“Interest rate liberalization has been a topic that they have been discussing for such a long time and they want to incorporate that into this latest package as well, so that they are not just looking at short term stimuli but also longer term. That will give the banks more flexibility and I think that will not just help to improve efficiency, but also alleviate some of the short-term liquidity crunches which businesses experienced last year.”

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