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Drop in PMI fuels rate cut expectations

(Global Times)

08:08, June 04, 2012

China's central bank may cut its benchmark interest rate this month after the manufacturing sector expanded at its slowest pace in May, the Shanghai Securities Journal said Saturday.

Peng Wensheng, chief economist with the China International Capital Corp, told the newspaper that the central bank is highly likely to slash interest rates soon, and may further cut banks' reserve requirement ratio as many as three times within the year in an effort to stabilize the real economy.

The manufacturing purchasing managers index (PMI) ended five straight months of growth in May and retreated to 50.4 percent from 53.3 percent in April, the China Federation of Logistics and Purchasing said Friday. Zhang Liqun, a researcher with the Development Research Center of the State Council, said the retreat of the PMI was in line with the country's slowing economic growth.

Zhang was quoted by the newspaper as saying that China is likely to further lose steam with a decline in the sub-index for new orders, pointing to even weaker future factory activity.

The central government pledged last month that it will prioritize stabilizing economic growth, warning that the economy faces "increasing downward pressure."

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