In a signal that the regime is getting increasingly uncomfortable with softening economic growth numbers the lending and deposit rates were cut by 25 basis points, to 5.1% and 2.25% respectively. The ceiling for the deposit rate was raised to 1.5 times, from 1.3.
“We are forecasting growth to slow to 6.8% in 2015 and 6.5% in 2016 compared to 7.4% in 2014,” said Louise Valentin, head of emerging markets advisory at SEB. Going forward, we expect two more cuts over the next two quarters to take deposit rates to 1.75. China is slightly behind the curve in easing and with very little inflation at 1.5%, deposit rates can be reduced lower.”
“We also expect more easing through reserve requirement reduction of 200bps to 16.5% by year end. The main beneficiary in policy adjustment remains the equity market,” she added.
“Given the apparent shift to more aggressive easing, we now expect an accelerated pace of monetary easing for the rest of 2015, in effect frontloading the stimulus we had expected for 2016,”said Schroders emerging markets economist Craig Botham. “One implication might be that April’s data is weaker than expected, certainly the trade and PMI data so far would suggest as much. We think GDP growth is likely to slow further in Q2.”
