China’s central bank is poised to cut interest rates amid trade war, economist says

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The People’s Bank of China is expected to lower interest rates twice later in 2019 and once in 2020 amid the country’s ongoing trade fight with the U.S., a Bank of America Merrill Lynch economist said Wednesday.

The U.S. has so far slapped a 25% tariff on $250 billion of Chinese goods, and American President Donald Trump has threatened to apply the same elevated levy on the remaining imports from China. In retaliation, Beijing has also raised tariffs on billions of dollars worth of American products.

“The next 25% batch of tariffs on $200 billion (of Chinese goods) would be actually much more severe in terms of the pain it could inflict on the overall growth,” said Helen Qiao, chief Greater China economist at Bank of America Merrill Lynch.

The bank expects the U.S. Federal Reserve to cut interest rates in September and December this year, Qiao told CNBC.

If the trade war were to intensify, that could lead the PBOC to this year cut rates even more than the two times currently anticipated, Qiao said. However, she did not rule out the chances of Washington and Beijing coming together on a trade deal this year.

On the fiscal front, Qiao said China is likely to roll out new infrastructure investments, consumer subsidies and tax measures to support the economy.

-CNBC’s Yen Nee Lee contributed to this report.