The Chinese central bank's second rate cut in three months will not be enough to halt a downturn in the world's second largest economy, with more easing steps needed, say economists.
The People's Bank of China (PBOC) cut benchmark interest rates by 25 basis points to 5.35 percent on February 28 as deteriorating economic conditions forced the central bank to shorten the time gap between policy moves. It had already delivered a lending rate cut on November 21 and a reserve requirement ratio cut (RRR) on February 5.
The rate cut, which came sooner than some analysts had expected, was announced hours before the release of the official purchasing managers index (PMI) for February, which showed the country's manufacturing activity contracted for a second straight month.
More steps needed
"Against this backdrop, we think more easing steps will follow," said Louis Kuijs, chief China economist at the Royal Bank of Scotland. "This is needed to ensure that GDP (gross domestic product) growth will not fall too much below 7 percent in 2015 – what we expect will be announced as this year's target during the NPC (National People's Congress) meeting that starts March 5. "
A further reduction in the benchmark lending rate and RRR are in the pipeline, say economists.