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12 May 2015

International Economy

China’s 3rd Rate Cut in 6 Months Reflects Alarm over Slow Economy (Current Issue No. 2624 Full Ed.)

Following two policy rate cuts since November 2014, the People's Bank of China (PBOC) has for a third time lowered its benchmark rate further by 0.25 percentage point. After the new rate comes into effect on May 11, 2014, its one-year lending rate will be reduced from 5.35 percent to 5.10 percent, and its one-year deposit rate down to 2.25 percent, from 2.50 percent previously. This move reflects Chinese authorities' concern over a currently persisting economic slowdown.
Amid risks facing the Chinese economy, KResearch holds the view that the PBOC is looking to adopt a more accommodative monetary policy stance that can be implemented via rate cuts. With its still-low inflation, there is room for China to use two more rate cuts. Other than that, the central bank might lower its commercial bank Reserve Requirement Ratio (RRR) as part of stimulus. As for quantitative easing (QE), we believe that this is unlikely for China to settle on this option.
The Chinese government has also revealed a plan for this year to stimulate its economy via both monetary and fiscal policy that would hopefully create more jobs in the country – a goal that China seeks to achieve, aside from GDP growth.

China's negative imports for six straight months have dented Thai economic performance unavoidably, since our outbound trade is heavily reliant on China's purchases. Its policy rate cuts may not be very advantageous to our exports though, given that China is a major market for our intermediary products and commodities, whose prices are now in a downtrend. In the long term, however, it does offer Thai companies an opportunity to send more consumer products into the Chinese market, considering such factors as rising incomes, urbanization and national economic reform plan towards a “New Balance” wherein private consumption is seen as the main economic driver.

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International Economy