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Report suggest that China may cut interest rates to boost growth

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As per the reports the People’s Bank of China and the China’s central Bank are likely to cut down the interest rates by 25 basis points in both the second and third quarter to boost their economic growth that was affected by the slowdown in the US and the European zone.

A research paper, co-sponsored by the Xiamen University and the National University of Singapore stated that the China’s monetary policy is likely to make some changes in the first half of the year when the inflation pressure will gradually ease out.

“Our team expects that, People's Bank of China may cut down the interest rate twice both in the 2nd and 3rd quarter and that too by 25 points on both the quarters” said Professor of Economics of the Lee Kuan Yew School of public policy.

After making the two sequential cuts, the benchmark interest is likely to come down to 6.06% from 6.56%.

The central bank declared that it will deduct the reserve requirement ratio by 50 basis points that will be made effective till February 24.

This deduction is followed by the 50 basis point cut in the reserve requirement ration in December 2008. Professor Li Wenfu of Xiamen University was quoted as saying that –“as the external demand will reduce and the domestic economy will slow down, then it is believed that the pressure will eventually ease this year,".

As per the National Bureau of Statistics, the main gauge of inflation was at 4.5 per cent till January and it rose to 5.4 % in the year 2011.

On the reports of the research, China's CPI is likely to fall to 3.33 per cent this year that will be 2.18% down as compared to its previous values in the year 2011. This result will provide a leeway for the central bank to loosen its policy when the economy will further slow down

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