China Cuts Interest Rates to Make Borrowing More Attractive

by CFO Innovation Asia Staff, 06 July 2012

0 comments

Facebook

Digg

Twitter

topics:
Bank Borrowing/Credit Lines Finance and Banking

tags:
inflation interest rates lending People's Bank of China

Thumbnail:

In a surprise move, China's central bank cut interest rates for the second time in less than a month.

To make borrowing more attractive, the People's Bank of China (PBOC) said it would cut the one-year yuan lending rate by 0.31 percentage point, to 6%.

This follows the 0.25 percentage point cut on June 7, which was the first interest rate cut in three years.

In a report, ABN AMRO interpreted the quick succession of cuts as an indication that China's top leadership is concerned about the pace of the economic slowdown. “They are willing to do all it takes to avoid any further cooling down of the economy,” the investment bank concluded.

ABN AMRO expects multiple cuts in banks’ reserve requirements (200 percentage points) and another moderate cut in the lending rate (50 percentage points) to ensure an economic rebound in the second half of the year.

Virendra Singh, Director of Moody's Analytics, also believes that more cuts in the lending rate are coming because it’s key to the viability of long-term infrastructure projects. He says that the cut makes it clear that inflation will be low, and Q2 GDP will likely come in at 7.5%, which is lower than the 7.8% Moody's had previously forecast.

The Wall Street Journal reports that the PBOC also said banks could lend at 70% of the benchmark rate, down from 80% currently, making loans more affordable for

borrowers.

Many business officials, however, have argued that interest rates aren't inhibiting them from borrowing more, but lack of demand is the problem, says the Journal.

The Journal cites HSBC economist Sun Junwei who says that the PBOC's decision to lower the rates suggested that "we have to be prepared for worse-than-expected growth data and a faster-than-expected drop in inflation."

The PBOC also put up a notice on its website warning banks to continue suppressing speculative investments in housing, making it clear that the property bubble remains a concern of the government and there will be no change in policy for its mortgage loans.

Orignal Author:

CFO Innovation Asia Staff

Quote Image:

Comment on this article

Your name: *

E-mail: *

The content of this field is kept private and will not be shown publicly.

Homepage:

Comment: *

Web page addresses and e-mail addresses turn into links automatically.
Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <a> <p> <span> <div> <h1> <h2> <h3> <h4> <h5> <h6> <img> <img /> <map> <area> <hr> <br> <br /> <ul> <ol> <li> <dl> <dt> <dd> <table> <tr> <td> <em> <b> <u> <i> <strong> <font> <del> <ins> <sub> <sup> <quote> <blockquote> <pre> <address> <code> <cite> <embed> <object> <strike> <caption>
Lines and paragraphs break automatically.
Use  to create page breaks.

More information about formatting options

Verification Code

This question is for testing whether you are a human visitor and to prevent automated spam submissions.

What is the first word in the phrase "aqu jebodo eze owiv oyozer"?: *

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.

Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions

Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.

Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.

Business Intelligence, Enterprise Software and Systems, Financial Systems, Security