Tao Wang, a Hong Kong-based economist at UBS AG (UBSN), comments on China’s second interest-rate cut in a month.
The People’s Bank of China said today the one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow. Banks can offer loans of as much as 30 percent less than benchmark rates, the central bank said on its website.
“The rate cut is unexpected, very soon after the first cut in June. The government is getting increasingly concerned about growth and the lack of credit demand.”
UBS forecasts June industrial production growth to have remained “weak” at 9 percent, and second-quarter gross domestic product expansion to have slowed to 7.6 percent, Wang said. Banks’ new lending may have fallen short of market expectation of about 900 billion yuan to 1 trillion yuan, the economist said.
“We maintain that the interest rate cut will not do much to stimulate growth. It is lending restrictions that need to be eased and that government investment need to go up, and we do expect more actions on that front.”
“The asymmetric cut in interest rates will hurt banks’ margin further. This also means that the government has made the decision to support the corporate sector at the expense of the banks.”
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