China's interest rate cut shows concern about slowdown

A man walks out from a bank outlet in Beijing, on April 4, 2012. This week China's central bank announced it will cut interest rates.

David Brancaccio: China today dropped its key interest rate by a quarter percent -- the first cut since 2008.

Todd Lee is chief China economist at IHS Global Insight. Mr. Lee, thank for joining us.

Todd Lee: Good morning.

Brancaccio: Why this interest rate cut now, do you suppose?

Lee: I think it's clear that the government of China has become increasingly concerned about the new evidence of a slowdown in the economy. And given this is a political transition year, now they have decided that they have to be much more proactive.

Brancaccio: Now, growth is nowhere near to grinding to a halt in China; it's still brisk by Western European and U.S. standards.

Lee: That's true, but by China's standards, I guess everything's relative. So initial production has slowed to below 10 percent -- this is something that we haven't seen in some years. So by China's standards, growth is relatively weak.

Brancaccio: Did this surprise you today?

Lee: Yes, and no. We know that they will be much more proactive in terms of unleashing stimulus. But their M.O. so far has been trying to leave interest rate policy alone, concentrating more on the direct ordering or the direct action in pumping liquidity into the system, or just ordering banks -- which is mostly controlled by the government -- to be more relaxed about lending practice. Also, the May data will come out over the weekend, so there may be something in the data that prompted them to act first.

Brancaccio: Todd Lee, IHS Global Insight. Thank you very much.

Lee: You're welcome.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...