People's Bank of China's Zhou Sees Rate-Cut Pressure

By Nipa Piboontanasawat and Theresa Tang

Dec. 16 (Bloomberg) -- China's central bank Governor Zhou Xiaochuan said he sees pressure to cut interest rates from now until the beginning of next year as growth slows amid a collapse in exports.

The global financial crisis has caused the world's fourth- largest economy to cool, “especially Chinese exports to other part of the world,” Zhou said in Hong Kong, where he is attending a regional meeting of the Financial Stability Forum. ``From now until the beginning of next year is full of interest-rate cut pressure.''

Data released over the past week showed industrial production growth slowed to the weakest in almost a decade and the expansion in money-supply moderated. The government pledged Dec. 13 to boost liquidity to spur consumption and may add to the steepest interest-rate cuts in 11 years to revive consumer and business confidence.

“They realize now that the risk is of 5 to 6 percent growth next year,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “They will use interest rates, money supply, bank lending -- the full spectrum of monetary stimulus. It's short, sharp, shock treatment.”

China's growth has slowed for five consecutive quarters and its 9 percent third-quarter expansion was the weakest in five years.

Zhou said that slowing inflation in China gave the bank room to lower borrowing costs.

``Consumer prices are ``going down, and sometimes even faster than we think,'' he said. China's inflation cooled to the weakest pace in almost two years in November.

To contact the reporter on this story: Nipa Piboontanasawat at npiboontanas@bloomberg.net