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Expert Views: Chinese central bank cuts benchmark rates

Source : REUTERS
Last Updated: Thu, Jul 05, 2012 12:48 hrs
An employee counts Renminbi banknotes at a Bank of China branch in Hefei,

China's central bank cut interest rates for the second time in two months on Thursday in the latest attempt to bolster slowing growth in the world's second-largest economy.

Benchmark lending rates will be cut by 31 basis points to 6 percent, and deposit rates by 25 basis points to 3 percent, the People's Bank of China said in a statement on its website.

The latest rate cut is effective from Friday. The central bank last cut interest rates on June 7.

ANALYSTS COMMENTS:

RUPERT ARMITAGE, DIRECTOR AT SHORE CAPITAL

"It is a bit of a double-edged sword. China are cutting rates because they're experiencing a slowdown. China was a bit of a surprise... we can expect cyclical and Asian stocks to rally and the defensives to underperform in the short-term. Everybody's been concerned about the economy but now they're actually doing something about it."

ADRIAN REDMOND, SENIOR TRADER, JN FINANCIAL

"The 50 billion (pounds of BoE) QE was factored in. I think the China cut is quite significant. All the miners (stocks) have bounced up."

DAVID MORRISON, MARKET STRATEGIST, GFT GLOBAL

"China also did this back in May, cut at the same time as the BoE decision, trying to steal (BoE Governor) Mervyn King's thunder. The fact that China is actually cutting lending and deposit rates is a bigger deal than just reducing the reserve requirement... But there is a great big Chinese data dump next week, so the question is whether this is a heads-up that data will not be as good as hoped."

JAMES ZHANG, ANALYST AT STANDARD BANK

"The market is not sure what to do with the news. It is positive news that China is easing its monetary policy but there are worries that the slowdown might be worse than originally anticipated. The market is undecided but more inclined to take it as positive."

WALTER DE WET, ANALYST AT STANDARD BANK

"Overall, a rate cut China, ECB, and the U.S. is all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you start cutting interest rates of course then real interest rates get lower, so we see it as a bullish development for gold, and most of the other precious metals should be benefit from that.

"Overall, it's positive for sentiment. Like many other commodities gold has been struggling under a lack of direction and this might give it a little more impetus. We think gold will go above $1,900 in the last quarter on exactly these reasons."

HARRY TCHILINGUIRIA, HEAD OF COMMODITY MARKET STRATEGY AT BNP PARIBAS IN LONDON

"The cut in rate came sooner than we expected, we were looking for a cut in reserve requirement ratios first, to be followed by a rate cut.

So the surprise in more in the order of policy measures.

By doing the rate cut first over further reduction in reserve requirements by commercial banks signals a more aggressive stance to defend economic growth which has shown clear signs of slowing down in Q1."

STEPHEN BRIGGS, BNP PARIBAS ANALYST

"They're trying to address the slowdown and this is one of the bigger tools in toolkit. Something of this order is always positive for risky asset classes and commodities in particular so there's been a predictable upward response."

"The enthusiasm as a result of the EU summit last week has faded but ... we're in a situation where so poor data is not necessarily bad news for commodities because its more likely to lead to more quantitative easing and other monetary easing."




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