China to roll out more rate cuts as growth slows

August PMI fell to 3-year low.

China’s central bank is expected to introduce several more rate cuts to counter the country’s slowing growth, according to a report from Credit Suisse.

This comes after the official Purchasing Managers’ Index (PMI) fell to a three-year low in August, with the headline number registering at 49.7.

“Beijing pays substantial attention to downward growth pressure. With data flows turning increasingly negative, we expect more pro-growth measures,” the report noted.

For instance, the local government debt swap line has already been expanded to Rmb3.2 tn, which should offer sufficient coverage to debt maturing in 2015 and early 2016. Credit Suisse noted that this should help ease the liquidity conditions for local governments.

Another pro-growth measure would be interest rate cuts. After recent moves by the People’s Bank of China (PBoC), Credit Suisse expects the central bank to roll out more rate cuts in coming months.

“We expect the PBoC to be active in the open market to maintain a stable and accommodative liquidity condition. We project one more interest rate cut of 25 bps and two more RRR cuts (total: 100 bps) for the remaining part of the year,” the report said.

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