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World: China Rate Cuts Not Keeping Up With Disinflation

ByThe National Bank of Canada
Published 07/08/2012, 05:38 AM
Updated 05/14/2017, 06:45 AM

Central banks are reacting to the dismal data released in recent days that suggest a contraction in global factory activity. In China, the one-year lending rate was unexpectedly cut by 31 basis points (to 6%) and the one-year deposit rate was reduced 25 basis points (to 3%). Lending rates will also be allowed to fall to 70% of the benchmark rate, down from 80% previously. This move, which was not anticipated, comes on the heels of yet another disappointing report which showed the China HSBC PMI index of non-manufacturing activity falling to a ten-month low of 52.3 in June. As today’s Hot Chart shows, it is worth noting that despite the largest back-to-back drop in the nominal one-year lending rate since 2008, the real interest rate is still rising because of falling inflation. Expect more easing from China in the coming months.
China rate cuts not keeping up with disinflation

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