Interest rate wars unlikely as China frees bank deposit rates — News Analysis

Concerns over the world’s second largest economy have been growing in recent months as China continues to experience structural inefficiencies and slowing growth, which looks set to slip to a 25-year-low of under 7 percent this year.

Japan’s Nikkei 225 index rose 1.3% to reclaim the 19,000 mark for the first time in more than two months. “That would be the flip side of the coin”.

“The sell-off is not that severe, but I think traders are a bit cautious after the market failed to hold onto its gains yesterday”, said Alex Wong, Director of Asset Management at Ample Finance Group in Hong Kong.

The MSCI’s index of the world’s share markets shot up to its highest level in more than two months on Friday, having risen more than 10 percent from its two-year low hit less than a month ago. The Shanghai Composite Index dipped 1.9% by noon break and Shenzhen’s tech-heavy ChiNext Index fell 2.1%. The central bank also made a similar combination move in late August.

It also announced that it would remove the upper limit on the interest rates’ floating range for deposits in commercial banks and cooperative financial institutions in rural areas, to help finance farmers and micro-enterprises.

Shanghai ended 0.50 per cent higher but Hong Kong finished 0.15 per cent down. “Markets are now expecting easing from the BoJ”, Mizuho Trust Bank chief strategist Takeru Ogihara said. Still, “longer term, fundamentals are pretty bleak”, diminishing the prospects of a sustained rally.

Total volume of A shares traded in Shanghai was 36.4 billion shares, while Shenzhen volume was 39.1 billion shares. Loans are still down 56% from a record 2.3 trillion yuan in June. Borrowing to buy shares magnified gains during a yearlong rally through June and losses when investors rushed to cover their positions.

The central bank rate cut came days after official figures showed that in the third quarter China’s economy expanded at its slowest pace since 2009. There are also expectations the Bank of Japan will expands its monetary stimulus.

China will be able to keep annual economic growth at around 6-7 percent over the next three to five years, a top People’s Bank of China (PBOC) policymaker said on Saturday, a day after the bank cut interest rates for the sixth time in less than a year. The contract soared $1.22 on Friday to close at $44.60. (2330. Taiwan/TSMC) dropped 1.6%. Australia’s S&P ASX 200 index gained 0.4%, pulling back slightly from an intraday high of 5,384 points.

Construction and utilities experienced the strongest selling pressure as they fell 2.33 per cent and 1.77 per cent, respectively. Brent crude fell another 0.9%.

Stocks in sectors like pharmaceuticals and healthcare, smart manufacturing, Internet technology-based services and new and renewable energy will benefit from the plans, according to research notes from brokerages.

Gregor Stuart Hunter and Lingling Wei contributed to this article.