Chinese interest rates: it’s about politics

LONDON | The People's Bank of China eased the cost of credit with a 25-basic point cut on the benchmark interest rates, unlike its counter-parties in Europe. The Chinese central bank set the 1-year lending rate at 6.31 percent from 6.56 percent, and issued new conditions under which retail banks are allowed to offer loans, now with a 20 percent discount instead of the previous official 10 percent. Is the government trying to offset some of the country's economic slowdown? Yes, but not only that.

Tim Gardner, from Legal & General's multi-manager fund, said on Tuesday t

hat they see the rate cut as a further sign that China's policymakers are intent on bolstering economic growth,

“particularly ahead of the leadership transition later this year. Indeed, we would not be surprised to see rates come down further (along with more cuts to required reserve ratios) in the remainder of 2012, especially with inflation now having fallen to 3% year-on-year.”

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About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.