CHINA’S central bank could cut its benchmark policy rate for the first time in four years if the U.S. Federal Reserve delivers a widely expected cut in late July, analysts say, as Chinese policymakers step up support for the slowing economy. While Chinese officials continue to downplay the likelihood of more aggressive easing, the economy has been slow to respond to a host of earlier stimulus measures. Some analysts believe GDP growth is nearing the lower end of the government’s 2019 target range of 6 to 6.5 percent, reinforcing expectations that more support is needed soon. Markets have priced in a 25 basis point cut to U.S. interest rates when the Fed holds its next policy meeting July 30-31, and expect several more later this year and next as the U.S. economy cools. China has not changed its benchmark one-year lending or deposit rate since October 2015, with the PBOC preferring to use money market operations that influence short-term rates, and special loan schemes to direct credit to more vulnerable sectors. An increasing number of analysts now believe a benchmark rate cut cannot be ruled out if domestic and external economic conditions deteriorate further. Policy easing by the Fed would give the PBOC more room to maneuver. Lu Ting, chief China economist at Nomura in Hong Kong, said he expects the PBOC to likely follow the Fed by cutting quasi-policy rates by “around 10 basis points” to relieve pressure on growth and employment. Serena Zhou, an economist at Mizuho Securities in Hong Kong, said she expects any adjustment to echo the symbolic moves in 2017 and 2018. “Lowering the reverse repo rate by 5 bps would not create a huge real impact, but would restore market confidence,” she said.(SD-Agencies) |