China’s first interest rate cut since 2008 and loosened controls on lending and deposit rates are a “sign of panic” and will not do anything to boost the economy, Jim Walker, chief economist at Asianomics Ltd. said.
“The timing is a surprise but I suspect it demonstrates just how weak the Chinese economy really is,” Hong Kong-based Walker said today in an e-mail. “We believe that it is pretty close to recession.”
China’s rate cut may signal that the world's second-biggest economy is weaker than the government anticipated, with reports on inflation, investment and output in May due to be released tomorrow. The move is a signal that “the whole world is heading into recession,” according to Walker.
The central bank's move may backfire if it “further dissuades people from putting money into savings and time deposits,” Walker said. “If anything, banks will need to raise their lending rates because their cost of funds is going up.”
Walker was formerly chief economist at CLSA Asia-Pacific Markets and was voted the best regional economist in an Asiamoney magazine brokers’ poll for 11 years through 2004.