PBOC rate cuts can help ease slowdown, says economist
Updated: 2008-12-24 07:34
By Kwong Man-ki(HK Edition)
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The central bank's latest interest rates cut can help ease the mainland's economic slowdown to a more manageable pace, an eminent economist with Beijing's think-tank said.
On Monday the People's Bank of China (PBOC) announced that it would lower the benchmark one-year lending and deposit rates by 0.27 percentage point to 5.31 percent and 2.25 percent and the directive came into effect yesterday.
Describing the rate cuts as meaningful steps, Ba Shusong, deputy head of the Financial Research Institute of the Development Research Center, said that it would prevent the economy from cooling down rapidly.
Ba, who was attending a forum in Hong Kong, said the decision shows that the central government has put the focus on "maintaining stability and growth". The leadership is also implying a moderately relaxed monetary policy, he added.
The mainland's exports fell for the first time in seven years last month, its imports plunged and manufacturing shrank by a record level, threatening to reduce its economy to a crawl.
In the short run, Ba said, banks' interest margins may be narrowed after the rates cut as they can't lower the cost by shedding the deposit rates.
However, he noted that banks can maintain their loan growth rates after the interest rates cut as well as the shedding of reserve requirement ratio.
Speaking at the forum, Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said there is little room for further rate cuts.
He explained that the mainland's economy is likely to bounce back in the second half of next year and he expects the economic growth rate to reach 8 to 9 percent.
Yi also suggests that the central government spends its foreign-exchange reserves on H shares, as the risk of investing is low with good return.
Due to the close tie-up between A and H-share markets, Yi believes that buying H shares is a way to stabilize the A share market.
Referring to the central government's 14 measures to boost Hong Kong's economy, Yi is not surprised about the measures, despite the widening of renminbi business in Hong Kong.
Hong Kong is likely to become an offshore renminbi clearing center, but he said that the city should make some improvement in terms of policy. For example, the city may propose measures in developing tie-up with Shenzhen and Guangdong.
(HK Edition 12/24/2008 page2)