China cuts interest rates in surprise move
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China has made a surprise cut to its benchmark one-year interest rate ahead of announcing key economic data.
The People’s Bank of China (PBOC) will cut the one-year lending rate by 25 basis points tomorrow, taking it from 6.56% to 6.31%. The one-year deposit rate will also fall 3.5% to 3.25%.
The move is the first cut to the benchmark rate since 2008. In July last year, the central bank increased rates by 25 basis points.
Over the weekend, China will release a batch of economic numbers, including inflation, investment and output figures.
Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia, told Bloomberg: “This will be the beginning of a rate cut cycle and there will be at least one more reduction this year. (article continues below)
“The data to be released over the weekend must be very weak and inflation must have eased sharply.”
Mark Williams, chief Asia economist at Capital Economics, says the rate cut is “clearly” in response to weakness in recent economic data.
“Many harbour doubts about the wisdom of another credit-fuelled stimulus, but the government’s overriding objective is to ensure that the economy is not too fragile in the final months before the leadership transition,” Williams adds.
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