China’s rate cut augurs worse to come

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. Refiles to fix byline and dateline.)

HONG KONG (Reuters Breakingviews) - The People’s Bank of China has cut the one-year benchmark interest rate after holding it steady for 20 months. The minor tweak of just 5 basis points will at best offset some of the headwinds from tightened travel policies across the country just ahead of the peak holiday season. It’s also essentially just a reflection of Chinese banks’ lower cost of capital after a reserve ratio cut earlier this month. The five-year interest rate used to price mortgages remains untouched, a sign of Beijing’s continued hawkish stance on property markets.

The government on Friday banned all cross-region group travel, as well as air ticket and hotel bookings, until mid-March. Meanwhile first-quarter GDP is likely to look ugly against the 18.3% high this year, while debt has surged to 265% of GDP. And companies face a mountain of bills and salaries due at year-end. With more pain in store for the economy, the central bank has more cutting in its near future. (By Yawen Chen)

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