BLBG: China Will Cut Interest Rates Again This Quarter, Survey Shows
By Paul Panckhurst and Cesilia Han
Oct. 23 (Bloomberg) -- China will cut interest rates again this quarter after inflation eased and the global financial crisis sapped economic growth, according to all nine economists in a Bloomberg News survey.
The key one-year lending rate will fall 27 basis points to 6.66 percent, according to seven of the economists. Two predict a drop of twice that size.
The estimates come after the world's fourth-biggest economy grew at the weakest pace in five years as the U.S. slowdown cooled demand for exports. China has cut borrowing costs twice in the past six weeks, increased tax rebates for exporters and reduced fees for home buyers to stimulate expansion.
``The economy is still growing strongly but cutting interest rates is like taking out insurance, to make sure that the pace doesn't dip below 8 percent,'' said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong. ``China needs that level of growth to keep creating jobs as the population grows and people move from the countryside to the cities.''
The deposit rate will fall to 3.6 percent from 3.87 percent, according to the median estimate of seven economists surveyed.
China cut borrowing costs for the first time in six years on Sept. 15, the day U.S. investment bank Lehman Brothers Holdings Inc. filed for bankruptcy. It moved again on Oct. 8 as the U.S. Federal Reserve and five other central banks made emergency coordinated reductions to counter the global financial crisis.
Easing Inflation
``The government's shifted its entire focus from inflation and overheating in the economy to sustaining growth,'' said David Cohen, an economist with Action Economics in Singapore.
Inflation cooled in September to 4.6 percent, the slowest growth in more than a year.
Economists expect interest rates to keep dropping, with the lending rate set to decline to 5.58 percent in the fourth quarter of next year from 6.93 percent currently, according to the survey.
Financial turmoil and the global economic slowdown ``have started to have a negative impact on China's economy,'' Li Xiaochao, the spokesman for the National Bureau of Statistics, said on Oct. 20. The economy grew 9 percent in the three months through September from a year earlier, the fifth straight quarterly slowdown.
China is boosting infrastructure spending and raising tax rebates for exporters of textiles, clothes, toys and medicines. The central bank has also cut the proportion of deposits that banks are required to set aside as reserves and eased quotas that limit their lending.
The following are economists' forecasts for lending and deposit rates.
