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Pros and cons of a PBOC interest rate slash - Bloomberg

As reported by Bloomberg, constraining data releases for China's domestic economy raises the question of rate cuts from the People's Bank of China (PBOC), but the decision to cut rates isn't a clear decision path.

Key quotes

After still-more disappointing economic data and fog around the trade war with the U.S., investors are upping their bets that more stimulus is on the way. The People’s Bank of China could reduce the one-year lending rate, sending borrowing costs lower across the economy, or focus on driving down inter-bank lending rates through reverse repurchase agreements.

Among economists surveyed by Bloomberg, the consensus forecast sees the benchmark one-year rate remaining on hold for at least the next year. But a debate is raging.

Ming Ming from Citic Securities Co. and Lu Zhengwei from Industrial Bank Co. say a cut in the benchmark rate or the open market operation rates is needed to encourage credit and lower funding costs. Goldman Sachs Group Inc. have said they expect interbank rates to be managed lower to help growth recover.

"Cutting benchmark rates may not shore up the economy and could still cause other problems like further inflation of the property bubble, increasing capital flight and worsening income distribution," Lu Ting, chief China economist at Nomura International Ltd., wrote in a recent report.

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