China cuts rates by 108 bps!

Reuters points:

The People’s Bank of China (PBOC) cut benchmark rates for one-year loans and deposits by 1.08 percentage points, lowering the cost of one-year borrowing to 5.58 percent and the rate on 12-month certificates of deposit to 2.52 percent.

Chinese Govt has taken series of measures to restore confidence and keep growth momentum in the economy (see summary of measures here).

 China’s economy forecasts are mixed. IMF in its recent Asia Outlook said it would grow by 9.7% in 2008 and 8.5% in 2009. It has revised its forecasts downwards from October projections by 0.1% and 0.8%.

On the other hand, World Bank in its latest China report (summary here, has forecasted China would grow at 9.4% in 2008 and 7.5% in 2009. So, 2008 forecasts are near same but 2009 forecasts are quite different.

IMF on releasing the Asia Outlook looked confident that China would achieve a growth rate around 8-9%. :

MR. CHALK: I’m Nigel Chalk, Division Chief for the China Division of the Fund. Maybe I’ll talk about the China forecast specifically, and perhaps Jerry can talk a little bit about the impact on the region. For China, we see growth next year around 8-1/2. That incorporates what we expect to be their fiscal stimulus program, although the details of that are still evolving, and also the monetary loosening that they’ve done so far this year. That range of 8 to 9 is a similar range that the government also I think has in mind and we’re fairly comfortable with that range.

World Bank says:

The report’s main author, senior economist Louis Kuijs, added that most of the recently announced ten points for stimulating domestic demand and growth mean higher direct government-influenced spending – in the form of investment or consumption – and should therefore have a measurable impact on output in the short term. ” More than half of our GDP growth forecast of around 7.5 percent for 2009 is coming from government-influenced spending.”

So, much will depend on how fiscal stimulus shapes up in China.

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One Response to “China cuts rates by 108 bps!”

  1. purpose of world bank | Apple.com Says:

    […] China cuts rates by 108 bps! On the other hand, World Bank in its latest China report (summary here, has forecasted China would grow at 9.4% in 2008 and 7.5% in 2009. So, 2008 forecasts are near same but 2009 forecasts are quite different. … […]

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