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BOT doubts Beijing's surprise rate cut will have much effect on China's growth by Hung Tran
ERICH PARPART THE NATION November 27, 2014 1:00 am THE BANK of Thailand was surprised by the decision of the People's Bank of China...
Posted on: November 27, 2014
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BOT doubts Beijing's surprise rate cut will have much effect on China's growth



ERICH PARPART
THE NATION November 27, 2014 1:00 am
THE BANK of Thailand was surprised by the decision of the People's Bank of China (PBOC) to cut its benchmark lending rate by 40 basis points, from 6 per cent to 5.60 per cent, but it believes the move will have only a minimal impact on China's economy.
BOT spokesman Chirathep Senivongs Na Ayudhya said he did not expect lending in China to increase much after the rate cut since that country's commercial banks are limited by their loan-to-deposit ratios.

However, the PBOC action will lower the interest-rate burden on China's state-owned enterprises (SOEs) while not interfering with Beijing's efforts for economic and monetary reform. The cut is also in line with a period of low inflation, he said.

UOB Global Economics and Markets Research said the PBOC's first interest-rate cut in more than two years was unexpected, but overall demand conditions are not likely to be significantly affected.

UOB expects China's gross domestic product to grow by 7.4 per cent this year and 7.5 per cent in 2015.

Chirathep said the BOT expected China's economy to expand by 7-7.5 per cent next year supported by Beijing's policies of risk management and rebalancing. This means expansion will be gradual and reflect China's reform measures of maintaining stable growth of GDP and employment.

He explained that China was attempting to stabilise its long-term economic expansion. The country is also undergoing monetary reforms to control shadow banking and to maintain a manageable level of public debt after a rapid increase of off-budget spending, while increasing the role of domestic consumption in the economy.

Chirathep said that under these policies, China's economic activities had slowed from the lowering of public and private investments on permanent assets.

Nevertheless, investment in basic infrastructure and real estate has improved, while investment in the industrial sector has continued to slow because of shrinking profits and concerns over the economy's performance in the next period. This led the authorities to mitigate the situation by lowering the policy interest rate to help reduce investment costs, especially for SOEs, which hold a large amount of debt from China's commercial banks, he said.

China's Producer Price Index decreased from negative-0.9 per cent in July to minus-2.2 per cent in October.

Reorient Group, an investment firm in Hong Kong, said last weekend that the PBOC "should have lowered the benchmark interest rate a long time ago, since the trend of rising corporate financing costs and concomitant financial stress has been visible for some time". However, it believes the rate cut was "delayed by a vigorous and very public debate in Chinese policy circles as to whether a rate cut might be viewed as reform fatigue and a cheap substitute for regulatory reform".

Reorient expects an early cut in the reserve requirement ratio (RRR) by mid-December and "at least one additional cut in the benchmark policy rate to just above 5 per cent prior to the 2015 Chinese New Year".

Meanwhile, UOB expects further market liberalisation along with RRR cuts into 2015 to keep growth steady.

Source: nationmultimedia.com

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