CHINA’S POLICY SPACE

CHINA HAS STILL MORE ROOM FOR RATE CUTS: EXPERTS

The Economic Times, July 6, 2012

BEIJING: The second rate cut this year made by China's central bank yesterday to boost the sagging economy came sooner than expected, but it has still more room for further reductions, say experts.

"The rate cuts (this year) came a little bit earlier than what the market expected," Li Huiyong, chief macroeconomic analyst for Shenyin & Wanguo Securities said.

"I think a declining inflation level gives more room for lowering the interest rates and it reflects that economic growth is not looking that good in the second quarter," he said told state run Xinhua news agency.

In a surprise move yesterday, the People's Bank of China (PBOC) cut benchmark interest rate for the second time this year as the world's second largest economy showed signs of slowing down further in the second quarter.

It has reduced the rate for one-year deposits by 25 basis points (0.25 per cent) and for one-year lending by 31 basis points (0.31 per cent).

The move came less than a month after the rate cuts announced on June 7, when the benchmark rates were slashed by 0.25 per cent in their first cuts since December 2008.

The central bank also brought down the lower limit for lending rates to float to 70 per cent of the benchmark rate from 80 per cent announced in June, stepping up its bid to liberalise interest rates.

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