Economists expect an imminent interest-rate reduction by China's central bank to maintain steady domestic economic growth.

The People's Bank of China auctioned 80 billion yuan (US$11.7 billion) of one-year bills at its regular open market operations yesterday at a yield which was nearly 10 basis points below market forecasts. The result showed growing expectations of interest-rate cuts, economists said.

"Such action signals the central bank may be ready for another interest cut," said Li Huiyong, an analyst with Shenyin & Wanguo Securities Co. "Against the backdrop of a weak external demand and a sluggish home consumer market, the risk of an economic downturn is rising and an interest-rate cut would not surprise."

Last month, China cut the key lending rates and the reserve requirement on smaller banks to lift the domestic economy after the gross domestic product slowed to 10.1 percent in the second quarter from 10.6 percent in the first three months and 11.9 percent last year.

"The PBOC is less likely to change the deposit ratio this time in order not to widen the rate gap between markets at home and abroad and to stabilize the exchange rate," Li said.

Song Guoqing, a finance professor at the China Center for Economic Research at Peking University, said that if ''the central bank does not adjust the rate in time, it will do great harm to the economy."

Wang Qing, a Morgan Stanley economist, said there was ample room for China to maneuver in three policy areas - monetary, fiscal and structural - to minimize the negatives of the global financial crisis.

"Although largely unscathed by the crisis, China is unlikely to be immune to the longer and deeper global downturn as a result of this financial-market turmoil," said Wang.

He expects a decisive policy shift toward boosting growth in the near future as two high-level meetings will be held this month and in early December, providing a platform for the government to launch a pro-growth policy package.

(Shanghai Daily October 8, 2008)