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Credit Suisse Says China Rate Cut ‘Matters Little’ to Economy

Tao Dong, Credit Suisse Group AG’s Hong Kong-based chief China economist, 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.

“This is a reaction to the slow loan growth and weak investment activities.”

The “asymmetric cut matters to the banks, but the rate cut matters little to the economy.”

“China’s in a liquidity trap, so further easing may not be that effective. The problem today is not that rates are too high, but that the private sector has lost investment interest, due to overcapacity and surging costs.”

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