July 6th, 2012
09:19 AM GMT
China gate-crashed the monetary policy party on Thursday.
Within a single hour, the Bank of England and the European Central Bank both made scheduled and much anticipated moves to pump more money into their financial systems. The unexpected guest was China.
The country's central bank announced that it would cut interest rates for the second time in a month, a move that surprised many analysts.
The People's Bank of China (PBOC) lowered its benchmark lending rate by 0.31 of a percentage point to 6% and its deposit rate by one quarter of a percentage point.
It's an aggressive play, and one that many economists think is a sign the Chinese economy is weakening faster than previously thought. Certainly, sliding exports to Europe, and rising costs in China are not helping to generate momentum in the world's second largest economy.
The country reports second-quarter growth data next Friday, which will shed more light on the state of the economy. But the rate cut could be a foreboding sign.
Globally, so many businesses and even whole countries (like resource-rich Australia) are relying on Chinese growth to keep them out the economic quagmire caused by a slumping Europe and a lackluster United States.
Signs that China's rapid growth might now be one the wane are alarming indeed.
The fact that China has chosen to cut interest rates and not use some of its other more subtle economic tools is also significant. Analysts say this shows they are making a serious and public effort to try to stimulate not just banks' lending, but also investment itself.
It's a key year for China, with a new president and prime minister on the way for 2013. In a research note, China economists at Barclays said this also played into the interest rate cut, showing that the Chinese government "will not ignore growth risks in this critical year of leadership transition."
Now what about that curious timing?
Much to the frustration of those who cover it, the PBOC does not have scheduled meetings or policy announcements like the U.S. Federal Reserve or the European Central Bank. But the time of the announcement Thursday - 7:01pm in Beijing and just one minute after the Bank of England's statement - could hardly have been an accident.
Frederic Neumann of HSBC says it's likely that the Chinese government was going for maximum effect to "reinforce the view that China is helping the world economy as much as it can."
So maybe China did crash the party, but at least it brought a gift.
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