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2 Mar 2015
PBoC cuts rates to help businesses cope up with taxing economic conditions – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team shares that the PBoC cut rates on the weekend by 25bp, citing declining inflation concerns as producer prices continued to fall.
Key Quotes
“the People's Bank of China cut its rates on Saturday. The 25 bp cut in the key one-year lending and deposit rates (to 5.35% and 2.50% respectively) was the first move since November.”
“The fact that the PBOC cut rates is not very surprising, but the precise timing is nearly always unpredictable.”
“Most of the speculation has focused on possible yuan depreciation, and some analysts have been playing up the risk that the 2% dollar-yuan band would be widened.”
“The rate cut overshadows the official PMI readings that were also reported over the weekend. The manufacturing PMI ticked up to 49.9 from 49.8 while non-manufacturing PMI firmed to 53.9 from 53.7.”
“The PBOC explained the rate cut in terms of a decline in inflation, which results in an increase in real rates. Consumer prices were 0.8% higher year-over-year in January while producer prices have been falling for three years.”
“Also on Saturday, China reported that housing prices in the 100 major cities fell by 3.84% in the year through February.”
“The rate cuts are not expected to reverse the slowing of the economy, arrest the deflation, or lift house prices. They will, though, help large businesses and state-owned enterprises to cope with the more challenging economic conditions. The rates cuts will also help facilitate the rolling over of existing debt.”
Key Quotes
“the People's Bank of China cut its rates on Saturday. The 25 bp cut in the key one-year lending and deposit rates (to 5.35% and 2.50% respectively) was the first move since November.”
“The fact that the PBOC cut rates is not very surprising, but the precise timing is nearly always unpredictable.”
“Most of the speculation has focused on possible yuan depreciation, and some analysts have been playing up the risk that the 2% dollar-yuan band would be widened.”
“The rate cut overshadows the official PMI readings that were also reported over the weekend. The manufacturing PMI ticked up to 49.9 from 49.8 while non-manufacturing PMI firmed to 53.9 from 53.7.”
“The PBOC explained the rate cut in terms of a decline in inflation, which results in an increase in real rates. Consumer prices were 0.8% higher year-over-year in January while producer prices have been falling for three years.”
“Also on Saturday, China reported that housing prices in the 100 major cities fell by 3.84% in the year through February.”
“The rate cuts are not expected to reverse the slowing of the economy, arrest the deflation, or lift house prices. They will, though, help large businesses and state-owned enterprises to cope with the more challenging economic conditions. The rates cuts will also help facilitate the rolling over of existing debt.”