Economists See Steepest China Rate Cuts This Year Since 2008Justina Lee and Cynthia Li
China will cut interest rates this year by the most since the global financial crisis as policy makers prioritize growth amid signs of a further economic slowdown.
The People’s Bank of China will reduce the one-year lending rate by another 25 basis points to a record 4.85 percent by year-end, bringing the cumulative cuts in 2015 to 75 basis points, according to the median estimate in a Bloomberg survey of economists. The amount of cash major banks must set aside as reserves will be lowered by 1 percentage point to 17.5 percent, the least since 2010, the survey shows.
China has stepped up stimulus this quarter in Asia’s largest economy as disappointing exports and manufacturing threaten the 7 percent annual growth objective. With inflation at half the official target, real interest rates when adjusted for the drop in producer prices have hovered near the highest since 2009, even as the central bank continued to slash borrowing costs and reserve requirements.
“Further policy support is still needed to stabilize China’s growth momentum and arrest the passive tightening of monetary conditions,” Wang Tao, an economist at UBS Group AG, wrote in a research note on Tuesday.
Analysts polled predict the economy will expand 6.9 percent this quarter, down from the 7 percent forecast in April. They also see the PBOC lowering reserve requirements by 0.5 percentage point by June 30 to 18 percent. The survey was conducted May 14 to May 19.
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