Chinese rate cut: quick comment

24th November 2014 by The Harried House Hunter

Weak Chinese October monetary data signalled that additional policy stimulus would be required to sustain economic growth at its recent pace – see previous post. The People’s Bank announced a modest easing step today, lowering the benchmark one-year bank lending and deposit rates by 40 and 25 basis points respectively. The suggestion of a fall in banks’ interest margin is reinforced by an accompanying rise in the permitted ceiling for deposit rates to 1.2 times the benchmark rate from 1.1 previously.

The question is whether this action will prove “too little, too late”. Despite receiving negative headlines, yesterday’s Markit “flash” manufacturing purchasing managers’ survey for November offers some reassurance. The key forward-looking new orders index remained stable at a level consistent with a further near-term recovery in six-month industrial output growth – see chart.

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