Here’s Why China’s Interest Rate Cut Is a Really Big Deal

CNBC:

China’s surprise 25 basis point cut in benchmark lending rates on Thursday caught economists and the markets by surprise, and could signal the economy is slowing faster than previously thought.

Most analysts had expected China to keep interest rates unchanged and to cut the reserve requirement ratio (RRR) for banks instead, thus allowing them to lend more of their deposits. But the interest rate cut suggests industrial production data for the month of May, due on Saturday local time, will show a further deterioration in growth and an easing of inflation .

“The timing of tonight's rate cut suggests two things. Either inflation has eased to less than 3 percent already, or, growth is slowing sharply faster than policymakers' previous expectations,” Donna Kwok, economist for Greater China told CNBC.

The country’s official purchasing managers' index last week signaled that growth was already slowing last month, while the HSBC PMI, which tracks small and medium sized firms fell to 48.4 from 49.3 in April. That was the seventh straight month the number had been below the 50-mark that demarcates expansion from contraction.

Kwok says there’s more to the “rate cut than meets the eye.” The discount that banks will be allowed to offer on lending rates, relative to the benchmark, has been more than doubled, she said. China strictly controls the interest rate at which banks can lend money and pay depositors.

“The discount that banks were previously allowed to offer on lending rates relative to the benchmark rate has been doubled, from 10 percent to 20 percent, which means that the lowest official lending rate has effectively been cut by 63 basis points, not just 25 basis points,” Kwok said in an email.

With China’s first-quarter gross domestic product growth falling to a three-year low of 8.1 percent, Brown Brothers Harriman said policymakers could follow up with more action to help the economy out of its rough patch.

“We expect a more aggressive easing cycle ahead as we think the downturn is becoming more severe,” the firm wrote in a note to clients Thursday.

+1 , when .25 basis point cut in interest rate spurs spending,

always remember when an interest rate cut, currency goes down,

when it goes down its a chain effect to ask people to spend more instead of saving, while in that good and services get cheaper which spurs also economic activity

likewise said for a interest raised.

seems like china is dovish on the current situation , next to cut is EU

Cals wrote:+1 , when .25 basis point cut in interest rate spurs spending,

always remember when an interest rate cut, currency goes down,

when it goes down its a chain effect to ask people to spend more instead of saving, while in that good and services get cheaper which spurs also economic activity

likewise said for a interest raised.

i guess when you push a 1 billion nation to spend ... you can expect a signification impact
if average one person spends 2-3 dollars .... that's couple of billions changed hands
+1 in return for the summary....

sleep lor

phoenix777 wrote:sleep lor

what is there if not to target the next trade???

haha

anyway found this interesting
-hold forever if you treat the stock as your wife.maybe you one found 1-2 stock like this in your life.WB must be lucky got so many wife.
-hold medium term if you treat the stock if you treat the stock as your mistress.
-hold short term( less than a year) if you treat it as your GF?easy come easy go

day trader leh?
like us leh sell in hrs/min/sec?

no big deal ler,, market drop like fly
i think last time that world central bank joint force baru big deal, remember one day up 30++point

& you know why chinaman cut rate, bcos tomorow got some economic data need to release, and a bad one, thats why need to cut rate with immediate effect first to buffer , kawan cakap la