China cuts interest rates

China on Thursday cut interest rates for the second time in a month, a surprise move that analysts said may indicate the world's second-biggest economy was slowing more quickly than expected.

The changes, which take effect from Friday, will see the benchmark one-year lending rate drop by 0.31 percentage points and the deposit rate fall by 0.25 percentage points, the central bank said in a statement on its website.

The cut will effectively adjust the one-year deposit rate to 3.0 percent and the one-year loan rate to 6.0 percent, the bank said.

The central bank did not immediately provide a reason for the rate cut, but analysts said China's economic planners may have acted after analysing data for the second quarter that is due to be released next week.

"On the one hand, the move shows inflation in June may not be high," said Liao Qun, chief economist of Citic Bank International in Hong Kong.

"On the other this implies that economic data may turn out to be weaker than expected, with the second quarter recording slower economic growth than the first quarter."

Ting Lu, a Hong Kong analyst for Bank of America-Merrill Lynch, agreed the central bank's aggressive move could signal that June's second quarter data "might be worse than expected".

China's economy grew an annual 8.1 percent in the first quarter of 2012 -- its slowest pace in nearly three years.

Among the more recent evidence to show China's economy was struggling, manufacturing activity contracted for the eighth consecutive month in June, British bank HSBC reported on Monday.

Mark Williams, chief Asia economist for Capital Economics, also pointed to reports this week suggesting that lending by the major banks was lower in June than in May, and that economic recovery depended on a rebound in credit growth.

The Chinese government had already reduced its economic growth target for this year to just 7.5 percent, down from actual growth of 9.2 percent last year and 10.4 percent in 2010.

China last cut interest rates on June 7, which was then the first move down in more than three years, and Ting said there could be similar moves in the second half of the year.

Andy Xie, an independent Shanghai-based economist, described China's current economic situation as "pretty dire".

"So they (the central bank) want to signal to the market that they care, this is a confidence measure," Xie said.

The European Central Bank announced a cut at the same time as China, bringing rates there to a new all-time low, and Xie said the moves were likely part of a joint effort by world leaders to boost growth.

"There is a global effort to stimulate growth and China wants to join this effort, so this is probably coordinated, China wants to show that it is a team player," he said.

China had previously hiked interest rates five times from October 2010, in an effort to control surging inflation due to worries of social unrest.

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Ayungin dilemma Ramon Casiple - Parallaxis
    Ayungin dilemma

    China faces a dilemma in Ayungin Shoal and other contested areas. If it waits for the ITLOS—which may decide against it—it would have tacitly bound itself to UNCLOS and risk a rogue state reputation if it asserts its claim in the South China Sea. If its militarily acts now, it may face international isolation. …

  • 48 nabbed in biggest anti-trafficking catch in Bongao VERA Files - The Inbox
    48 nabbed in biggest anti-trafficking catch in Bongao

    By Jake Soriano, VERA Files Bongao, Tawi-tawi—A team of Marines and policemen intercepted around noon Thursday 48 people, 12 of them minors, believed recruited by a human trafficking syndicate for work in Malaysia. The arrest constitutes what advocates called the … Continue reading → …

  • Docs vow to pay right taxes, make peace with BIR VERA Files - The Inbox
    Docs vow to pay right taxes, make peace with BIR

    By Kiersnerr Gerwin Tacadena, VERA Files Leaders of the medical profession have made peace with their former adversary, the Bureau of Internal Revenue (BIR), and joined forces in a campaign to get doctors to pay the right taxes. BIR Commissioner … Continue reading → …

POLL
Loading...
Poll Choice Options