China Says Interest Rate Cut Not Quantitative Easing

BEIJING – China’s central bank, the People’s Bank of China (PBOC) has trimmed the benchmark loan and deposit interest rates starting 11 May as the government seeks more ways to revive a slowing economy.

The rate cut, the third time since November 2014, means one-year deposit rate will now be 2.25 percent and the one-year lending rate will be at 5.1 percent following the announcement of a 25 basis points cut.

The cut will decrease funding costs to beef up the economy, the world’s second largest, while the national economic restructuring is ongoing, the PBOC announced.

PBOC’s research bureau chief economist Ma Jun, however, clarified that the rate cut was not a Chinese version of the quantitative easing that has been implemented by most nations around the world.

Ma said the quantitaive easing adopted in some developed nations means a country’s policy rates are nearing zero while the economy faces recession.

He said China’s police rates are not close to zero and the country is not facing recession, which means the rate cut was not a quantitative easing.

The central bank also said the decision to cut interest rate was in line with expectations that China will implement pro-growth monetary measures based on the latest economic figures.

China’s manufacturing data and foreign trade activities suggest that the country’s economy is currently on a rocky ride as the reform drive is ongoing.

Early this month, the HSBC / Markit purchasing managers’ index, a measure of China’s manufacturing sector, said factory activities in April was 48.9, lower than the preliminary reading and way below the 50 mark that separates contraction and expansion.

Meanwhile, analysts predicted that China is set to increase retail prices of gasoline and diesel in the local market due to the rising global fuel prices.

Xinhua reported that China is likely to lift the oil guide prices by more than Rmb200 (USD33) per tonne, the third consecutive increase.

Oil prices in China can be increased or decreased every 10 working days depending on the global market price.

Analyst predicted that the National Development Reform Commission will announce the gasoline and diesel retail price increases on Monday. –