China’s unexpected cut in interest rates – the second in less than a month – suggests that the world’s second-biggest economy is in worse shape than it appears and the government is getting worried about growth prospects ahead of the release of key economic data next week.
By surprising markets and slashing the one-year lending rate by 31 basis points to 6 percent and the deposit rates by 25 basis points to 3 percent, Beijing is signaling that it is getting serious about bolstering the economy by lowering borrowing costs for businesses and lifting private-sector investment, economists tell CNBC.
“The timing is earlier than expected, even if we already penciled-in one more cut in the third quarter. This may foreshadow worse than expected growth numbers that are due to release next week,” HSBC economists Qu Hongbin and Sun Junwei wrote in a report on Thursday.
China is due to release closely-watched indicators, including inflation and trade figures for June and second-quarter GDP growth, which economists say may show that the Chinese economy is slowing faster than the government would like. Beijing is targeting a growth rate of 7.5 percent for the economy for 2012.
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