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Reuters: China Ready To Cut Rates Again

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Debt deflation panic at the PBoC? :D

(Reuters) - China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making.

Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy.

Economic growth has slowed to 7.3 percent in the third quarter and policymakers feared it was on the verge of dipping below 7 percent - a rate not seen since the global financial crisis. Producer prices, charged at the factory gate, have been falling for almost three years, piling pressure on manufacturers, and consumer inflation is also weak.

"Top leaders have changed their views," said a senior economist at a government think-tank involved in internal policy discussions.

The economist, who declined to be named, said the People's Bank of China had shifted its focus toward broad-based stimulus and were open to more rate cuts as well as a cut to the banking industry's reserve requirement ratio (RRR), which effectively restricts the amount of capital available to fund loans.

China cut the RRR for some banks this year but has not announced a banking-wide reduction in the ratio since May 2012.

"Further interest rate cuts should be in the pipeline as we have entered into a rate-cut cycle and RRR cuts are also likely," the think-tank's economist said.

Friday's move, which cut one-year benchmark lending rates by 40 basis points to 5.6 percent, also arose from concerns that local governments are struggling to manage high debt burdens amidst reforms to their funding arrangements, the sources said.

Top leaders had been resisting a rate cut, fearing it could fuel debt and property bubbles and dent their reformist credentials, but were eventually swayed by signs of deteriorating growth as the property sector cooled.

http://www.reuters.com/article/2014/11/23/us-china-economy-policy-exclusive-idUSKCN0J70AN20141123

Edited by zugzwang

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Debt deflation panic at the PBoC? :D

You just wonder whether we will get to a point when houses, equities etc suddenly don't look attractive anymore based on yield v interest rates. Yield is still massively important to investors and the backdrop of ZIRP til 2016 has been the main driver behind the equities rally of recent days.

Get to deflation and yield suddenly doesn't matter any more......cash inflates on deflation come what may. That would be one hell of a panic for those holding assets.

Edited by crashmonitor

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You just wonder whether we will get to a point when houses, equities etc suddenly don't look attractive anymore based on yield v interest rates. Yield is still massively important to investors and the backdrop of ZIRP til 2016 has been the main driver behind the equities rally of recent days.

Get to deflation and yield suddenly doesn't matter any more......cash inflates on deflation come what may. That would be one hell of a panic for those holding assets.

985-money-printer.jpg

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