Friday, September 26, 2008

More China rate cuts expected

Should be good news for China market. Start buying China stocks again!

China to cut rates further, Korea may follow - BarclaysFriday, September 26, 2008 3:30:00 AM
SINGAPORE, Sept 26 (Reuters) - China's central bank is likely to cut interest rates further to spur economic growth while South Korea and other Asian countries could also join in easing policy, Barclays Capital said on Friday.

Taiwan's central bank surprised markets on Thursday by cutting interest rates for the first time since 2003 ending a four-year tightening cycle. Most central banks in the region have raised rates this year when inflation raced to multi-year highs, but there is a growing evidence that both inflation and interest rates have peaked.

'I think monetary policy is likely to start becoming more favourable,' said Peter Redward, head of emerging Asia research at Barclays Capital.

'We think the Bank of Korea is likely to follow suit,' he told reporters at a briefing.

China's cut in interest rates this month marked the beginning of an easing cycle in the country, which may see its economic growth slow further to 9 percent in 2009 from 10 percent this year and 11.9 percent in 2007, the bank said in a research report.

'In addition to further rate cuts, we expect fiscal stimulus measures, including tax cuts and spending increases,' the bank said.

Singapore's central bank, which steers monetary policy by managing its currency within a undisclosed trading band rather than adjusting interest rates, is likely slow the pace of currency gains when it reviews policy next month, Barclays said.

Economies in Asia ex-Japan could grow 8 percent this year before slowing to 7.1 percent in 2009, while inflation in the region may stay elevated at 7.5 percent by the end of this year, before slowing to 3.2 percent by the end of 2009, the bank said.

Slowing growth would prompt Asian authorities to step up spending on infrastructure projects, adding perhaps 0.3-0.4 percentage point to economic growth in 2009, it said.

The bank expected further weakness in Asian currencies in the near term due partly to the dollar's strength, but weak exchange rates would benefit the region's exports, Redward added.

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