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PBOC Large Rate Cuts Will Not Solve Economic Issues

CHINA PRESS
MNI (Singapore)
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Central bank moves to cut policy interest rates significantly might not solve China’s economic difficulty, the central bank-run newspaper Financial News reported, citing Zhou Qiong, senior researcher at the Shanghai Institution For Finance and Development. Recent market discussion on the PBOC cutting at least 70 basis points would risk stimulating investment and cause overcapacity, alongside hurting banks’ net interest margins, Zhou noted. Japan had shown easing did not solve its 1990s economic challenges when overcapacity remained an issue, with China facing a similar situation regarding its property sector, Zhou added. The PBOC will likely lower interest rates depending on economic and financial conditions with limited downside space given the current low nominal interest rate, said Zhou.

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Central bank moves to cut policy interest rates significantly might not solve China’s economic difficulty, the central bank-run newspaper Financial News reported, citing Zhou Qiong, senior researcher at the Shanghai Institution For Finance and Development. Recent market discussion on the PBOC cutting at least 70 basis points would risk stimulating investment and cause overcapacity, alongside hurting banks’ net interest margins, Zhou noted. Japan had shown easing did not solve its 1990s economic challenges when overcapacity remained an issue, with China facing a similar situation regarding its property sector, Zhou added. The PBOC will likely lower interest rates depending on economic and financial conditions with limited downside space given the current low nominal interest rate, said Zhou.