China to keep economic stimulus in 2016: Bloomberg

Beijing, Dec 19 (IANS) China is expected to keep its stimulus measures including interest rate cuts in 2016 to underpin economic growth, Bloomberg economists has said.

“The central bank will likely make two 25 bp cuts in the loan rate and multiple cuts in the reserve requirement ratio in the first half,” Xinhua cited the economists as saying on Friday in a report called “China’s Economy in 2016”.

However, “space for rate cut is limited as the deposit rate approaches zero,” according to the Bloomberg report.

Benchmark interest rates for one-year lending and deposits stand at 4.35 percent and 1.5 percent respectively after a 0.25 percentage point cut in this October.

To combat a economic slowdown, China’s central bank has cut benchmark interest rates five times since last November and lowered banks’ reserve requirement ratio three times since February.

The Ministry of Finance has accelerated public spending and rolled out a 3.2 trillion yuan ($494 billion) debt swap for in-the-red local governments, the Bloomberg report said.

“Most recently the yuan has fallen 2.4 percent to 6.4726 in mid-December from 6.3174 at the end of October,” said the report.

To add liquidity, the Bloomberg report forecast that China’s reserve requirement ratio will come down from the current 17.5 percent level next year.

The Bloomberg economists expected more pro-growth exchange rate and fiscal policy adjustments next year, adding that China has “enough policy space to keep GDP growth “close to seven percent, but not for much longer.”

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