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Barclays Says China Rate Cut Suggests Data Surprised to Downside

Chang Jian, an economist with Barclays Capital in Hong Kong, comments on China’s second interest-rate cut in a month.

The People’s Bank of China said today the one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow. Banks can offer loans of as much as 30 percent less than benchmark rates, the central bank said on its website.

“Policy makers have underestimated the weakness of sentiment and economic activities on the ground.”

“Two rate cuts in a month suggest very likely the second-quarter GDP data and June activities have surprised to the downside.”

“Rising external headwinds and rapid falling inflation have also helped to justify the move.”

Chang said Barclays is forecasting second-quarter gross domestic product growth of 7.5 percent, compared with the consensus forecast of 7.8 percent. Barclays sees June inflation at 2.1 percent, compared with consensus estimates of 2.3 percent, according to the economist.

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