China’s ‘too little, too late’ rate cut spurs call for more stimulus


SHANGHAI: China’s surprise interest-rate cut has done little to allay concern over the property and zero-Covid slowdown, with economists and state media calling for additional stimulus.

In a front-page report yesterday, the central bank-backed Financial News said Beijing should introduce new pro-growth policies at the appropriate time to keep growth within a reasonable range, citing Wen Bin, chief economist at China Minsheng Bank.

The Securities Times said in a separate report that the People’s Bank of China’s (PBoC) surprise rate cut on Monday may be the first in a series of policies to stabilise growth.

Nomura Holdings Inc’s Lu Ting, who described the 10-basis point reduction as “too little, too late,” said even a likely cut next week in the loan prime rate (LPR), the de facto benchmark lending rate, won’t do much to boost credit demand.

Zhong Zhengsheng of Ping An Securities Co said that while monetary policy support has reached the magnitude of what was deployed in 2020, more needs to be done given the recovery is weaker than it was back then.

Standard Chartered Plc’s Ding Shuang, meanwhile, forecast another 10-point cut to policy interest rates by the end of October.

In a note, Wang Tao, chief China economist at UBS AG, said that given the lingering Covid restrictions and fragile economic recovery, “we expect the government to continue increasing policy support in the rest of 2022.”

The derivatives market is signalling stronger expectations for a LPR cut as interest-rate swaps on the nation’s one-year LPR declined after the PBoC’s unexpected rate cut.

The curve is now implying 3.58% for the one-year LPR forward on a one-year horizon, versus 3.66% before the PBoC rate cut.

That means room for a cut of about 10 basis points from the current 3.7% level, according to Xing Zhaopeng, a senior strategist at Australian and New Zealand Banking Group Ltd.

Unlike many advanced economies right now, China’s core inflation, which excludes volatile energy and food prices, is pretty tame, slowing to merely 0.8% in July as domestic demand remained weak.

That gives the PBoC room to take action to fulfill its objectives, which include maintaining a stable currency, supporting growth and preventing financial risks.

However, the central bank has been cautious about being too aggressive with easing, which could damage the economy in the long term given its already elevated debt levels. — Bloomberg

Article type: free
User access status:
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!
   

Next In Business News

Tax cuts will boost economy, provide multiplier impact: Tengku Zafrul
Budget 2023: Govt to enhance green tech financing scheme
OGSE players to benefit from RM1bil maritime and logistics fund
MNOs execute share subscription agreements with DNB
Govt extends tax breaks on listing expenses to tech companies on Bursa Malaysia
ASB, ASB 2 investment limit increased to RM300,000
Govt allocates RM92mil towards developing halal industry
EPF's investment income falls 21% to RM27bil in 1H22
Budget 2023: Reactions from the financial sector
SemarakNiaga initiative receives RM45bil to spur business activity

Others Also Read