World Economy

China’s Central Bank Likely to Ease Policy

China’s Central Bank Likely to Ease PolicyChina’s Central Bank Likely to Ease Policy

China’s central bank is highly likely to ease monetary policy again by the end of this year, according to economists surveyed by Reuters, as it seeks to support a rapidly cooling economy and calm financial markets.

The People’s Bank of China cut interest rates and lowered the amount of reserves banks must hold for the second time in two months on Tuesday, acting amid pressure from a global stock market rout and massive outflows from its markets.

But with factory activity, exports and inflation slowing along with prolonged producer price deflation, economists polled predicted that the PBOC would have to act again.

The median from a snap survey of around 20 economists showed there is a 80 percent chance of a further cut in the reserve requirement ratio (RRR) by end-December, while the chance for a reduction in the lending and deposit rates stood at 70%.

While prospects of further easing will calm investors who are jittery over the effects a China slowdown could have on global growth, some analysts fear Beijing’s strategy might prove inadequate.

“The drip-feed of stimulus might not be sufficient to arrest aggressive bears, or significantly lift the economy in a demand-constrained world,” Mizuho Bank economists wrote in a note.

“While China’s latest easing measures are certainly welcome, we are worried that such reactive, ad hoc and uncoordinated (policy) might undermine conviction and efficacy.”