Ramin Toloui, Pacific Investment Management Co.’s global co-head of emerging markets portfolio management in Singapore, 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.
“Chinese authorities are adopting a series of policy actions designed to insure against the ‘left tail’ scenario of a major downturn, rather than an aggressive investment stimulus to supercharge growth.”
“The quick succession of rate cuts points to rising concerns that the government’s growth target of 7.5 percent for the year may be at risk. And with inflation on a declining path, the central bank has more degrees of freedom to act.”
“While these actions provide a cushion, do not count on a robust bounce,” as the economy and financial sector are “still digesting the large investments made in recent years.”