BY PETE SWEENEY
Weakness in China’s vast manufacturing sector, aggravated by high real borrowing costs and weak demand, appears to have driven the central bank to accelerate the pace of monetary easing to ward off deflation in the world’s second-largest economy.
Cuts to benchmark lending and deposit rates, announced by the People’s Bank of China (PBOC) on Saturday evening, pre-empted official data released on Sunday that showed a second consecutive month of shrinking manufacturing activity for February.
While economists had been predicting further easing to support the struggling economy, some were surprised that the PBOC made its move just days before China’s national legislature will meet to set the official economic growth target for 2015.
“This rate cut signals policymakers’ willingness to take further action to ease financing conditions in an effort to maintain stable growth,” wrote Nomura analysts’ in research note that said the cut had come sooner than predicted. “It also suggests that growth may have slowed sharper than we expected.”
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