The People’s Bank of China (PBoC) eased short-term borrowing costs for banks on Thursday, a “strong signal” that a rate cutting cycle is near, according to Barclays.
The PBoC cut the 14-day repo rate by 20 basis points to 3.5 percent in its bi-weekly open market operations, its second such move in two months after a 10 basis point reduction in July.
“[The] move sends a clear and strong signal, in our view, that the PBoC is more convinced that it needs to make more efforts to guide interest rates lower, after the July-August data pointed to a clear deterioration in the economic outlook and weakening domestic demand,” Jian Chang, China economist at Barclays wrote in note.
Economic indicators for August showed decelerating industrial production, slowing investment growth, contracting imports, subdued CPI inflation, and widening PPI deflation, fueling concerns of slowing growth in the world’s number two economy.
A rate cut would support demand, reduce the economy’s debt burden and ease financial risks, said Chang.
“A lower interest rate environment is necessary for China’s deleveraging process over the next few years,” Chang said. He expects a 25-basis-point rate cut in the fourth quarter and another in the first quarter of 2015. The one-year benchmark interest rate in China stands at 6 percent.
via CNBC
Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.