China rate cut raises fears of grim data

BEIJING - Reuters

Global cheers over China’s decision to cut interest rates faded quickly on June 8, as investors and economists worried that the move signaled the impending release of some grim economic data.

China’s surprise rate cut unveiled late on June 7 boosted hopes that cheaper credit would help combat its faltering economic growth and it encouraged global share markets in their belief that the major economies were stepping up stimulus. But the central bank’s cut, the first since the global financial crisis in late 2008, has also raised concerns about a deluge of May Chinese data due this weekend bracing for ugly numbers.

“The concern is that with industrial production and CPI data coming out of China at the weekend that it’s indicative of them knowing something about weak data going forward,” said Adrian Schmidt, currency strategist at Lloyds Bank in London.

Analysts forecast in a Reuters benchmark poll in May that China would deliver its weakest quarter of growth in three years in the second quarter at 7.9 percent. It would also mark the sixth straight quarter of slowing growth. They expected 2012 full-year expansion of 8.2 percent, a pace that industrial nations would envy but would be the weakest outcome for China since 1999.

The People’s Bank of China (PBOC) cut the official one-year borrowing rate by 25 basis points to 6.31 percent and the one-year deposit rate by a similar amount to 3.25 percent in an announcement after Asian markets closed on June 7.