China needs to continue cutting rates and other monetary easing measures to ensure that the economy will sustain its growth, according to HSBC.
China’s GDP expanded at 7% from a year ago in the second quarter, beating most economists’ forecasts. That puts the economy on track to meet the government’s official 7% target for the whole of 2015, though this year’s growth estimate will be the lowest in 25 years.
The PBOC has lowered its key rates four times since November and reduced the reserve requirement ratio of banks twice since February to stimulate borrowing, spending and investments, and in turn boost the sagging economy hounded by weak property market and shrinking factory output.
“The underlying economy appears to be on a more modest pace of growth, and it remains both early stage and rather fragile. In order to strengthen and sustain the recovery, more policy easing measures are likely still needed,” HSBC chief China economist Qu Hongbin and his economic research team wrote in a note released after China announced its April-June GDP data.
HSBC expects the PBOC, the country’s central bank, to lower its rate by 25bps more and a reduction in banks’ reserve requirement ratio by 200bps in the second half of the year.
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