Analysts sceptical about rate, reserve ratio cuts Beijing's decision to cut interest rates and the required reserve ratio for banks is a symbolic gesture to lift market sentiment and is unlikely to lend any significant support to the softening economy, analysts say. The People's Bank of China announced on Wednesday that it would cut lending and term deposit interest rates by 27 basis points and the reserve ratio - the level of capital banks must set aside as a portion of deposits - by 50 points. It was the first time in almost nine years that the central bank lowered the reserve ratio for all banks, and the cut in both the lending and deposit rates was the first since February 2002. Although the People's Daily lauded the decision as 'a forceful demonstration of China's determination to address the international and domestic economic conditions', economists are sceptical. 'It's unlikely to give concrete support to the economy,' China International Capital Corp chief economist Ha Jiming said. 'Because of pessimistic sentiments towards the mainland's economic outlook, corporate loan demand is going down, while commercial banks are more cautious in lending to avoid risks.' The mainland's gross domestic product growth slowed to 10.4 per cent for the first half from 11.9 per cent last year. Morgan Stanley predicts growth at 9.5 per cent for the third quarter, the first time since 2004 the pace is less than 10 per cent. Citigroup said the interest and deposit rate cuts would have 'a small negative for earnings' at banks as net interest margin would shrink because rates for demand deposits, which account for about half of all deposits, remained unchanged while lending rates were cut on all loans. Net interest margins would fall by 12 basis points and earnings by 8 points following the rate cut and its impact on banks' investments because of the probable decline in government bond yields, it said. Credit Suisse said the reduction in reserve ratio would boost liquidity but the impact would be limited. Merrill Lynch said the 27 basis-point rate cut on loans with maturities longer than five years indicated the central bank had started to ease lending to the property sector. The rate was trimmed by 9 basis points last month. 'With China bank shares falling 30 to 40 per cent since mid-August, we believe the co-ordinated rate cuts should salvage the fragile confidence in the global market and push up China bank shares in the near term,' it said. However, Merrill Lynch remained cautious about the deteriorating property market, saying a stable market was a prerequisite for buying into mainland banks. Many economists forecast further cuts on interest rates and reserve ratio in coming months, as Beijing shifts focus to sustaining growth from curbing inflation amid the financial crisis raging across the world.