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China Cuts Rates (Again) In Desperate Bid To Buoy Stocks, Rescue Economy

Tyler Durden's picture




 

For the third time since November, China has cut its benchmark lending rate. 

Hours ago, the PBoC slashed the 1-year lending rate by 25bps to 5.1% and the 1-year deposit rate to 2.25%. The move comes just three weeks after Beijing cut the reserve requirement ratio for the second time this year and marks a continuation of a heretofore unseen trend in China: easing into a stock market rally. 

From the PBoC announcement

The further decline in deposit and lending rates, the focus is to continue to play a leading role in a good benchmark interest rate, the cost of financing to further promote the social downside, support sustained and healthy development of the real economy. According to the unified deployment of the State Council, November 2014 and March 2015, the People's Bank has twice lowered the financial institutions lending and deposit benchmark interest rate. With the gradual implementation of the policy measures, financial institutions, lending rates continued to decline, the market interest rates dropped significantly, the overall social financing costs decreased. At present, the domestic economy accelerated restructuring, fluctuations in external demand, China's economy is still facing greater downward pressure. Meanwhile, the overall level of domestic prices remain low, real interest rates are still higher than the historical average for the continued appropriate use of interest rate instruments to provide space. In view of this, the People's Bank of China decided as from May 11, 2015, loans and deposits of financial institutions lowered the benchmark interest rate by 0.25 percentage point, to create a neutral appropriate monetary and financial environment for economic structural adjustment and restructuring and upgrading.

As we noted when the RRR cut hit last month, the country’s latest easing measures come as Beijing faces an increasingly perilous economic situation characterized by shifting demographics, a tough transition from investment to consumption, and slumping exports. To the latter point, the country has found itself stuck between the proverbial rock and a hard place as $300 billion in capital outflows over the last four quarters (and an IMF SDR bid) make yuan devaluation an unpalatable tool for countering slowing export growth. As such, lowering policy rates is seen as the preferable option for supporting the stalling economy. 

Against this backdrop, and with the latest data on PPI inflation (or, more appropriately, deflation) adding fuel to the fire, further easing was a foregone conclusion. Here’s Barclays:

PPI deflation and soft CPI inflation point to persistent deflation risks. On the back of weakening economic growth and rising deflation risks, we note a shift in the PBoC's monetary policy bias towards more easing since March, along with the government's stepped-up policy easing in other areas including fiscal policy and the property sector. It is worth noting that the PBoC has guided the reverse repo rate lower five times by a total of 50bp since March, which has resulted in a sharp drop in the 7d repo rate to 3.0% from 4.8%. The still elevated cost of funding, down only 10-20bp in Q1 despite the 65bp of cuts in the benchmark lending rate since November, point to the need of further monetary easing. We maintain our call for one additional 25bp benchmark rate cut in Q2 and look for two more 50bp RRR cuts in 2015, with the risk of more if growth continues to disappoint.

And a bit more color from Reuters:

Economists had said it was not a matter of if, but when China eased policy again after economic growth in the first quarter cooled to 7 percent, the slowest pace since 2009.

 

Some market watchers had even said the central bank was risking falling behind the curve in responding to rapidly deteriorating conditions.

 

Initial indicators and industry surveys for April released over the last few weeks had pointed to a further loss of momentum heading into the second quarter.

 

"Currently, the pace of domestic economic restructuring is quickening and the fluctuation of external demand is relatively big. China's economy is still facing relatively big downward pressure," the central bank said.

 

“This is not a surprise. The consumer inflation reading for April was lower than expected and employment faces downward pressures," said Lin Hu, an economist at Guosen Securities in Beijing.

 

"But the effectiveness of the rate cut won’t be very big, it may (only) help stabilize expectations. Fiscal policy should be stepped up and there will be further monetary policy easing if economic data continues to underwhelm. We expect the worst could be over after the second quarter and growth may stabilize in the third or fourth quarters as the property sector recovers.”

Although there’s no question that China’s economy is sputtering and that growth is probably running well short of the official 7% headline figure, we would ask the same question we asked on the heels of last month’s RRR cut. Namely, is it really about the economy? At the time, we said the following: 

Recall that on Friday Chinese equity futures crashed after the close following news that the China Securities and Regulatory Commission (CSRC) put out an announcement which tightened up rules governing certain trading on margin while simultaneously liberalized rules on short selling. 

Coincidentally, it was just last Tuesday that brokerages such as CITIC Securities Co Ltd, Haitong Securities Co Ltd and Huatai Securities Co Ltd tightened requirements for margin financing in an effort to “control risks.” The result: Chinese stocks promptly suffered their biggest drop since January, falling more than 4.1%. 

We wonder then, if Beijing is taking its cues from stocks or from the economy and because this looks like deja vu all over again, we'll close with exactly what we said three Sundays ago:

Expect last week's selloff to be more then BTFDed as soon as China opens for trading in a few hours, and the SHCOMP to surge even higher and to even more unsustainable, and centrally-planned levels, merely pushing back the day of reckoning by a few weeks or months, as yet one more bank scrambles to preserve the "wealth effect" by artificially pushing its stock market higher.

 

 

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Sun, 05/10/2015 - 07:46 | 6077711 Seasmoke
Seasmoke's picture

Gold.

Sun, 05/10/2015 - 08:10 | 6077738 maxmad
maxmad's picture

Well played, Chicoms!  Well Played!

Sun, 05/10/2015 - 08:11 | 6077740 maxmad
maxmad's picture

Scramble for liquidity!

Scrambled eggs?

Sun, 05/10/2015 - 08:48 | 6077775 negative rates
negative rates's picture

Precisely

Sun, 05/10/2015 - 09:37 | 6077831 Soul Glow
Soul Glow's picture

Nation-States are grinding fiat into nothingness in hope that they can merely "go back to a gold standard" when this fiat shitshow falls apart.  The problem with that is, none of their gold is allocated.  China has a Fort Knox too, a place they say the gold is but isn't.  The gold is being held in private reserves for the oligarchs just in case the people revolt against the governments, ensuring they can finance their next hundred years.  The army needs payment, and without payment they will not fight.  It's the oldest story in the books - fighting for money.  Well that and sleeping for money. 

Be your own bank, buy silver, or gold if you can afford it.

Sun, 05/10/2015 - 10:57 | 6077974 Consuelo
Consuelo's picture

'Be your own bank'...   I like that.   It's a short but meaningful turn of phrase that, if nothing else, might make people pause to THINK.

Sun, 05/10/2015 - 10:01 | 6077873 HungryPorkChop
HungryPorkChop's picture

Yes, but they are playing the same game as the rest of the world.  QE and ZIRP to keep the stawk' and real estate markets shot up like a Russian Race Horse.  As the old sayin' goes, By My Deeds Ye Shall Know Me.  China complains about the U.S. devaluing its currency but when push comes to shove they immediately hit the exact same buttons which is ZIRP and Print, Print, Print. 

Sun, 05/10/2015 - 11:06 | 6077992 ThirteenthFloor
ThirteenthFloor's picture

Sort of same game. Rate in China is 5.1 %, savings 2.25%, USA is zero, EU is negative. With a shiny new industrial machine, and 18k tons gold and all the energy they need from RU, let's see who's the last man standing.

I am not a China fan just trying to cut to the chase.

Sun, 05/10/2015 - 08:12 | 6077741 VinceFostersGhost
VinceFostersGhost's picture

 

 

If that doesn't work, they'll threaten to raise interest rates.

 

Just threaten, not actually do it.

Sun, 05/10/2015 - 08:42 | 6077768 ZH Snob
ZH Snob's picture

they should curtail their mimicking of western financial policies and instead play their strength: gold.

rickards estimates their recent acquisitions brings them to 5 or 6K tons and that the price is being manipulated down to give them a chance to catch up so they can play with the big boys (as if the US and UK will still lead the world).

jim willie claims they have 20K tons, at a minimum, and that they will introduce gold trade notes at first as a way of changing how international trade is conducted: with real assets.

willie's outline makes a lot more sense to me for one good reason.  china will inevitably eat the T-bills they already have.  they are not pleased about this, but are forced to accept it and move on.  I would guess they will never want to burned for trillions again in international trade and will introduce gold trade notes to avoid this in the future.

rickards, though brilliant, appears to be an apologist and misinformer for his buddies in the fed and the cia.

 

Sun, 05/10/2015 - 09:33 | 6077830 CarpetShag
CarpetShag's picture

..and Ricktards's Twitter feed is a nauseating mixture of self-inflation and sycophantism.

Sun, 05/10/2015 - 10:59 | 6077979 Consuelo
Consuelo's picture

Classic psy-ops is to offer the target audience bits & pieces of truth to gain trust first.   Once that trust is gained, you take their knees out...

 

 

Sun, 05/10/2015 - 07:52 | 6077715 oudinot
oudinot's picture

Silver

Sun, 05/10/2015 - 07:55 | 6077719 yogibear
yogibear's picture

The Chinese like to gamble big.

Sun, 05/10/2015 - 08:04 | 6077731 kowalli
kowalli's picture

tungsten

Sun, 05/10/2015 - 09:58 | 6077869 Soul Glow
Soul Glow's picture

The Queen stares at her turngsten bars while the bankers of the House of the Red Shield hide the real gold in the mountains of the Alps.  Bernanke shrugged off Paul's questions about money, thinking this barberic relic lay in Fort Knox and in the vaults of the NYFRB, yet little did the Professor know Jamie Dimon and JPM had since transfered the shiny metal out, replacing it with gold plated tungsten bars!

The gold is not in the vaults, it lies in remote caves like Yamashita's horde.  Families like the Bushes, Rockefellers, Clintons, and Rothchildes have stashes.  Ken Lay, yes him, has some.  PM Brown, he who sold electronic gold - for it is never traced and often double lest triple allocated - has some.

The gold is not where you think it is, and while the PTB sell out their fiat standard in less than 50 years after it was put in use they steal all the gold entrusted to them by Treasuries worldwide.

The United States Treasury's gold is entrusted to the FRB.  Germany's gold is entrusted to the FRB.  Japan's gold, Italy's gold, due to WWII is entrusted to the FRB.  The FRB does not have the gold.

Be your own bank, buy gold and silver.

Sun, 05/10/2015 - 10:32 | 6077919 Farqued Up
Farqued Up's picture

Soul Glow, while I am positive that you have no proof of that tidbit, it sounds entirely plausible, better than most other speculations and there are no absolute truths in the universe, anyway.

Sun, 05/10/2015 - 11:40 | 6078053 Soul Glow
Soul Glow's picture

No proof?  You underestamate me ;)

Why Is JPMorgan's Gold Vault, The Largest In The World, Located Next To The New York Fed's? -

http://www.zerohedge.com/news/2013-03-02/why-jpmorgans-gold-vault-larges...

Just What Is Going On With The Gold In JPMorgan's Vault? - 

http://www.zerohedge.com/news/2013-04-24/just-what-going-gold-jpmorgans-...

JPMorgan Is Selling The Building That Houses Its Gold Vault -

http://www.zerohedge.com/news/2013-08-18/jpmorgan-selling-building-house...

And don't forget someone broke into the gold vaults at the WTC the morning of 9/11....

Flashback: 9/11 and the gold in the NY Federal Reserve -

https://jonrappoport.wordpress.com/2014/01/30/flashback-911-and-the-gold...

Sun, 05/10/2015 - 08:05 | 6077736 new game
new game's picture

and what does lower interests rate do? moar debt to stimulate growth and pull forward consumption.

keynsian control, debt is the new king, the stealth representative of humanity, with central bankers the court of rule makers.

just don't do it, ha...

Sun, 05/10/2015 - 08:08 | 6077737 elegance
elegance's picture

And this far east ponzi will take over the world aaaany minute now... And bail it out in the process as well. Lol.  

Sun, 05/10/2015 - 08:37 | 6077759 post turtle saver
post turtle saver's picture

hey China, while you're doing that, may as well go ahead and rattle sabres at your largest trading partners that are helping to keep that shambling junk afloat... plays well with the peasants, you know...

Sun, 05/10/2015 - 08:40 | 6077764 kowalli
kowalli's picture

you need to wait for next month

Sun, 05/10/2015 - 08:39 | 6077761 FoundInTranslation
FoundInTranslation's picture

Bitcoin

Sun, 05/10/2015 - 13:13 | 6078279 Groundhog Day
Groundhog Day's picture

EMP...

My money is on an EMP or Solar flare for the big reset.

takes out bitcoin money, wipes away debt, wipes away digital credits, paper stocks, and most importantly...leaves the blame off the banksters, politicians, corportists et al

This is why we have "IN GOD WE TRUST" on all the paper money and coins.  I wonder what the vegas odds mkers think

Sun, 05/10/2015 - 08:45 | 6077772 pachanguero
pachanguero's picture

My USD in Asia is getting better and better.  All Asian fiat is burning as well as the USD.  Arabs are in panic,  Thai's ready for civil war and Hong Kong is like a powder keg.

cheap and getting cheaper....

I'm long AU in physical and select mining stocks like AEM, OKSKS, AUY and SVW...

 

Hope I'm protected.....

Sun, 05/10/2015 - 09:48 | 6077852 Soul Glow
Soul Glow's picture

The USD is gaining value because the velocity of its use has plummeted.  Velocity of the supply decreases its price.  Because the Fed is holding so many dollars and not trading them there is no velocity.  

Even though value - price - has increased this is not bullish for the dollar in the end.  The sign that no bank wants dollars is the writing on the wall.  

THE DOLLAR IS DEAD

Sun, 05/10/2015 - 12:05 | 6078119 pachanguero
pachanguero's picture

Well, I agree but TA says you need a hedge but go long the USD.  Hedge with GDX 

 

 

Sun, 05/10/2015 - 12:38 | 6078193 Soul Glow
Soul Glow's picture

Yes well tits and ass is one reason I invest in gold and silver

:)

Sun, 05/10/2015 - 08:50 | 6077780 i_call_you_my_base
i_call_you_my_base's picture

My guess is that this is all about real estate.

Sun, 05/10/2015 - 09:03 | 6077792 Last of the Mid...
Last of the Middle Class's picture

Cut rates to zero, then print like a mother fuc*er. Everyone knows that's the answer. Should work fine for them, there's no real middle class anyway.

Sun, 05/10/2015 - 09:05 | 6077797 Blopper
Blopper's picture

First sailang.

Then jump from rooftop.

Sun, 05/10/2015 - 09:19 | 6077814 CHC
CHC's picture

Chopsticks!

Sun, 05/10/2015 - 09:23 | 6077817 MFL8240
MFL8240's picture

economic growth in the first quarter cooled to 7 percent

 

US growth was 1/2 of a percent, whats the problem?

Sun, 05/10/2015 - 09:31 | 6077826 Soul Glow
Soul Glow's picture

Trying to stay pegged to the dollar will prove the yuan's undoing, not that it was a solid currency otherwise but trying to keep pace with ZIRP is like swimming in a shark tank.

Sun, 05/10/2015 - 10:37 | 6077928 Farqued Up
Farqued Up's picture

The Swiss Bank agrees with you. It took them long enough to wake up and spit out the pond water.

Sun, 05/10/2015 - 09:37 | 6077834 New Kid
New Kid's picture

Around 5% seems to be a decent interest rate. When it gets below 3% we can call it desperation.

Sun, 05/10/2015 - 09:40 | 6077837 Soul Glow
Soul Glow's picture

The real rate of return is the stated rate minus inflation.  So let's say inflation is 7%, the real rate is - 2%.  That's a fucking horrible rate of "savings".

Sun, 05/10/2015 - 09:51 | 6077854 Ginsengbull
Ginsengbull's picture

Maybe I should open a Chinese bank account.

 

American banks arent paying shit for interest.

 

Make my own trans pacific partnership.

Sun, 05/10/2015 - 10:06 | 6077883 buzzsaw99
buzzsaw99's picture

damn straight. unfortunately they are headed for nirpleville too. :sigh:

Sun, 05/10/2015 - 11:25 | 6078028 Soul Glow
Soul Glow's picture

Yeah put your money in an unallocated account with a a foreign banker - look how well it is working out for everybody.

Sun, 05/10/2015 - 10:03 | 6077880 q99x2
q99x2's picture

Whichever central bank prints the most first wins. 

Sun, 05/10/2015 - 10:28 | 6077909 Atomizer
Atomizer's picture

Sunday morning humor. 

If Robin Hood Met Republicans http://m.youtube.com/watch?v=LEcDlD8Jz5k
Sun, 05/10/2015 - 11:23 | 6078021 bnbdnb
bnbdnb's picture

You'd think with all the finagling the price controls would be a bit more evident....

Sun, 05/10/2015 - 11:28 | 6078036 franciscopendergrass
franciscopendergrass's picture

there is scarcity in every aspect of life except fiat and bullshit.

Sun, 05/10/2015 - 11:37 | 6078052 fremannx
fremannx's picture

The loss of stock market momentum is reflective of the global loss of economic momentum. Equity market collapse is just weeks away...

http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...

Sun, 05/10/2015 - 11:51 | 6078083 Dixie Flatline
Dixie Flatline's picture

All is well

-50 cent blogger.

Sun, 05/10/2015 - 13:05 | 6078259 Yen Cross
Yen Cross's picture

  That should translate into some additional $usd strength. We shall see when the usd/cny fix comes out later.

 This coupled with the Greek news could put a nasty squeeze on the $usd shorts, which caugh* caugh*, based on last weeks COT report showed the $usd long positions had moved back to neutral with shorts.

Sun, 05/10/2015 - 15:25 | 6078624 83_vf_1100_c
83_vf_1100_c's picture

CRT monitors from the worlds manufacturer of all things? Update the stock footage please.

Sun, 05/10/2015 - 17:52 | 6079101 In.Sip.ient
In.Sip.ient's picture

Hours ago, the PBoC slashed the 1-year lending rate by 25bps to 5.1%

 

"Slash" you say?

To 5.1% you say? 

 

Sounds more like a blip to accomodate not hammering the US$

before its time...

 

Pretty soon, this site will be writing the scipt for Washington, since

they obviously need all the help they can get.

 

 


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