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By Bradley Gerrard | Published Jul 09, 2012

Managers welcome second Chinese rate cut

Fund managers have welcomed China’s second interest rate cut, saying the move should help the world’s second largest economy counteract its slowing growth.

China cut its benchmark interest rate for the second time in a matter of weeks, with the one-year lending rate falling by 0.31 percentage points to 6 per cent and deposit rates declining by 0.25 percentage points to 3 per cent. The move came as the European Central Bank cut its main interest rate by 0.25 percentage points to a historic low of 0.75 per cent and the UK’s Bank of England also eased its monetary policy by announcing another £50bn of quantitative easing, to take the total to £375bn.

China’s rate cut comes amid a weakening manufacturing sector, with the official purchasing managers’ index for manufacturing falling to 50.4 in May – its lowest in five months – from 53.3 in April. A level above 50 signals an expansion in activity.

Raymond Ma, portfolio manager of Fidelity’s China Consumer fund, said the earlier-than-expected cut could signal that economic figures due to be released this week may be “worse than expected”.

“This move is in tandem with my prediction at the beginning of this year, in that the Year of the Dragon would be a year of liquidity and I expect more easing measures in the pipeline to boost growth,” he said.

Jim Swanson, chief investment strategist at MFS Investment Management, said as monetary policy works with a lag, he expected the easing to “bring economic activity to life by year end”.

However, Matthew Dobbs, manager of the £254m Schroder Asian Alpha Plus fund, warned that although this was the second Chinese rate cut within a month the economy might still be “a little cautious” before embarking on major stimulus – especially with the fiscal austerity package scheduled for the US next year.

“Firstly, things are not so bad, so you could ask, “Why do it now?” Secondly, if they shoot all their bullets now, what happens if the fiscal cliff happens in the US?” he said.

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