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China central bank may cut interest rates

Feb. 27, 2012 at 2:06 AM   |   Comments

BEIJING, Feb. 27 (UPI) -- China's central bank may cut interest rates in the second half of this year due to easing domestic inflation, economists told the China Daily.

The experts said the cuts -- once in the second quarter and another in the third for a total of one half of 1 percent -- may also come about because of slowing economies in Europe and the United States.

"We expect the People's Bank of China to cut the interest rate twice in the second and third quarters, by 25 basis points each time," Professor Chen Kang at the National University of Singapore told the newspaper.

The two cuts together would bring the interest rate to 6.06 percent from the current 6.56 percent.

The central bank earlier this month cut the reserve requirement ratio (the percentage of money lenders must set aside as reserves) by 50 basis points, on the heels of a similar cut in December. The latest cuts brought the RRR to 20.5 percent for large commercial banks and 17 percent for mid- and small-sized banks.

"As the external demand weakens, the renminbi [yuan] further appreciates and the domestic economy slows down, we believe the inflation pressure will gradually ease this year," said Professor Li Wenfu at China's Xiamen University.

Official data shows the Consumer Price Index, China's main gauge of inflation, stood at 4.5 percent in January year-on-year, down sharply from 5.4 percent for all of 2011.

Li said China's CPI is expected to fall to 3.33 percent in 2012, adding that will provide a "leeway for the central bank to loosen its monetary policy as the economy further slows down."

Zhang Ping at the Chinese Academy of Social Sciences predicted China's February inflation is expected to fall below 3.5 percent.

An economist at HSBC warned of more downside risks to growth with a meaningful rebound for domestic demand not in sight and external weaknesses starting to bite.

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