2nd March 2015
The People’s Bank of China (PBOC) took markets by surprise over the weekend. China’s central bank unexpectedly cut interest rates to 5.35 per cent on Saturday, its second rate cut in three months.
China’s GDP growth rate declined to 7.4 per cent in 2014, its lowest reading in decades, and was likely a deciding factor in its move to cut rates again. Further impetus came from plunging commodity prices around the world, which continues to heap deflationary pressures on top of the slowing economy.
The central bank’s rate cut also came moments before China released some downbeat data. Official Purchasing Managers’ Index (PMI) figures showed China’s factory activity contracted for a second month.
However, the downbeat news was moderated on Monday, where the February HSBC PMI release showed factory activity edged up to a seven-month high.
Despite this, China’s economic outlook suggests we should expect further monetary policy easing, in a bid to boost growth and stave off deflation. This will likely come in the form of cuts to the interest rate and reserve requirement.
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