China to Retain Economic Stimulus for 2016
China will be expected to keep their stimulus measures, which includes the interest rate cuts for 2016 that will underpin economic growth. The central bank will likely make two cuts in the loan rate and multiple cuts in the reserve requirement ratio for the first half. But space for rate cut will be limited as the deposit rate hits zero.
Benchmark interest rates for a one year lending and deposits stands at 4.35 percent and 1.5 percent respectively after a 0.25 percent point cut in percentage this October. Furthermore to combat the economic slowdown, China’s central bank has a benchmark interest rate cut five times since last November and has lowered banks reserve requirement ratio three times since February. The Ministry of Finance sped up public spending and rolled out a 3.2 trillion yuan and $494 billion debt swap for local governments.
Most recently the yuan fell 2.4 percent to 6.4726 in mid December from 6.3174 during the end of October and to add liquidity, China’s reserve requirement ratio comes down from the current 17.5 percent level for next year. Economists is also expecting a pro growth exchange rate and fiscal policy adjustment next year adding that China will have enough policy space in keeping GDP Growth close to 7 percent.