• ftr_soc1
  • ftr_soc2
  • ftr_soc3
  • ftr_soc4
  • ftr_soc5

Chinese Interest Cuts Set to Boost Economy

By Raj Abbacus
May 11, 2015

On Sunday the Chinese Central Bank cut the one-year lending rate by 0.25 basis points to 5.1% and the one-year deposit rate by 0.25 bips to 2.25%. This cut in interest rates is aimed to counter the economic slowdown that the Chinese economy has encountered over recent quarters. As a result, the financial markets of Shanghai and Hong Kong saw a large jump this morning, Shanghai’s Composite index rising 1.2 percent and the Hong Kong markets rising 0.7 percent. Other Asian economies also saw jump within their stock market indexes including Japan and South Korea.

Being the third time that the Central Bank has changed the interest rates under a year caused skepticism of the stability of the Chinese economy. However, according to Kenneth Rapoza, Forbes Analysis “There is a tendency always to see China as teetering on the edge of economic collapse, but given the range of tools at policymakers’ disposal … conditions should soon stabilize. That would keep GDP growth on the official figures at around 7%. Despite it being a response to economic weakness, today’s move is also likely to give another boost to equity markets.

With the recent high frequency of change of the interest rates China has demonstrated how “The People’s Bank has the luxury of having plenty of room to maneuver and is willing to use it,” said Mark Williams, Chief Asia Economist at Capital Economics Ltd. The willingness for the People’s Bank to be able to stimulate their economy via their monetary policy allows investors to be very positive about the future of China’s Economy. However problems such as China’s slumping property market and their debt overhang cannot be underestimated.

Inflation remained subdued and exports and imports both slid in April — underscoring the economy’s struggle to match Premier Li Keqiang’s 2015 growth target of about 7 percent. With capital flowing abroad and local governments embroiled in a complex debt cleanup, economists anticipate further easing within the near future for further stimulation.