Benidict Hoffman analysts say rate cut may prompt Chinese consumers to spend more of their substantial savings.
Benidict Hoffman analysts say that China may have to resort to a range of measures to help support the slowing economy. These measures should include reducing interest rates and increasing spending in welfare, health and pensions. Such measures would prompt Chinese people to save less and spend more, thereby jumpstarting the consumer driven economy.
China has one of the biggest savings ratios in the world. The global average is around 25% of GDP but China’s is approximately 47%. The Chinese population has long been programmed to save for a rainy day with the chances of economic risks and poor job security proving a good motivator to save hard earned funds.
These massive savings would be an invaluable resource for China’s economy during these hard times but Benidict Hoffman analysts say it may not be easy to convince consumers to spend more and save less. A rate cut may go some way to encouraging spending.
The People’s Bank of China previously indicated its intention to cut interest rates twice during the course of this year and again one more time during 2020. Benidict Hoffman analysts say this would be the first time in four years that the PBoC was reducing interest rates.