Interest rates may fall again, says top central bank official

By Nipa Piboontanasawat  |   2008-12-17  |     NEWSPAPER EDITION

CHINA'S central bank Governor Zhou Xiaochuan said interest rates may fall again this month after exports declined, inflation slowed and a report came out yesterday showing that property investment had cooled.

"From now until the beginning of next year is full of interest-rate cut pressure," Zhou said in Hong Kong, where the Financial Stability Forum is meeting. Consumer prices are "going down sometimes even faster than we think," he said.

China's economy may be heading for its slowest growth in two decades as the global financial crisis cuts demand. The government pledged on December 13 to boost liquidity after cutting interest rates last month by the most in 11 years to spur lending and consumption, Bloomberg News said.

"They realize now that the risk is of 5 to 6 percent growth next year," said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. "They will use interest rates, money supply, bank lending - the full spectrum of monetary stimulus. It's short, sharp, shock treatment."

Spending on factories and real estate rose 26.8 percent in the first 11 months from a year earlier, down from a 27.2-percent gain through October, the statistics bureau said yesterday. Industrial output grew the least since 1999 in November, exports fell for the first time in seven years and inflation was the weakest in almost two years, reports in the past week showed.

China's slowdown is deepening before a 4-trillion-yuan (US$584 billion) stimulus package announced last month kicks in. The central bank reduced the one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting bank lending.

The global recession is taking a toll across Asia. South Korea's growth will slow rapidly next year, the Ministry of Strategy and Finance said.

Zhou said he couldn't describe November's data as "very bad," citing retail sales, which grew 20.8 percent.