China’s central bank on Wednesday cut key interest rates in a bid to spur economic growth, the third such move in six weeks.
The People’s Bank of China decided to cut the benchmark one-year deposit rate by 27 basis points to 3.60 per cent, it said in a statement on its website.
The one-year lending rate was also reduced by 27 basis points to 6.66 per cent, the bank said.
Stock markets soared in Asia and Europe on Wednesday ahead of an expected rate cut in the United States and as hopes rose of a similar move in Japan.
When China last cut interest rates early this month, speculation was ripe that the decision was made in coordination with other central banks, which also slashed rates at the same time.
This is the third time in just over six weeks that China has cut interest rates.
It reduced its benchmark one-year lending rate to 7.20 per cent in September, the first such cut since 2002 in a strong indication that it was concerned about the need to spur growth.
Mr Mark Williams, a China economist at Capital Economics, said the latest rate cut showed China was making every effort to prevent a major slowdown.
‘It shows that the Chinese government is pulling out all the stops to make sure the gentle economic slowdown we’ve seen so far doesn’t turn into something more serious,’ he said.
‘Interest rates have a very limited impact on the economy so they are seen as a signalling move by the government that it is trying its best to support growth at around nine per cent.’
Mr Stephen Green, a Standard Chartered economist, said China was likely to cut rates once more this year due to the deteriorating economic situation.
‘It’s obvious that in the last month there has been evidence of an accelerating slowdown,’ he told Dow Jones Newswires.
‘While Beijing is still thinking about fiscal stimulus, it’s clear they’re happy to relax monetary policy in the meantime.’
China’s economic growth slowed to 9.9 per cent in the first nine months of the year, as the global financial crisis started to have an impact on the world’s most populous nation.
In the third quarter, the economy grew by just nine per cent, the first time since the fourth quarter of 2005 that quarterly growth slipped into single digits.
Mr Williams said the government was hoping the move would boost investor confidence.
‘Past interest rate cuts have had a positive impact on equity markets but it tends only to last for a few days,’ he said.
Mr Chen Xingdong, a Beijing-based economist with BNP Paribas, agreed the rate cut would not be very helpful.
‘Investors do not make decisions based on interest rates,’ he said.
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China Cuts Interest Rates
AFP
29 October 2008
China’s central bank on Wednesday cut key interest rates in a bid to spur economic growth, the third such move in six weeks.
The People’s Bank of China decided to cut the benchmark one-year deposit rate by 27 basis points to 3.60 per cent, it said in a statement on its website.
The one-year lending rate was also reduced by 27 basis points to 6.66 per cent, the bank said.
Stock markets soared in Asia and Europe on Wednesday ahead of an expected rate cut in the United States and as hopes rose of a similar move in Japan.
When China last cut interest rates early this month, speculation was ripe that the decision was made in coordination with other central banks, which also slashed rates at the same time.
This is the third time in just over six weeks that China has cut interest rates.
It reduced its benchmark one-year lending rate to 7.20 per cent in September, the first such cut since 2002 in a strong indication that it was concerned about the need to spur growth.
Mr Mark Williams, a China economist at Capital Economics, said the latest rate cut showed China was making every effort to prevent a major slowdown.
‘It shows that the Chinese government is pulling out all the stops to make sure the gentle economic slowdown we’ve seen so far doesn’t turn into something more serious,’ he said.
‘Interest rates have a very limited impact on the economy so they are seen as a signalling move by the government that it is trying its best to support growth at around nine per cent.’
Mr Stephen Green, a Standard Chartered economist, said China was likely to cut rates once more this year due to the deteriorating economic situation.
‘It’s obvious that in the last month there has been evidence of an accelerating slowdown,’ he told Dow Jones Newswires.
‘While Beijing is still thinking about fiscal stimulus, it’s clear they’re happy to relax monetary policy in the meantime.’
China’s economic growth slowed to 9.9 per cent in the first nine months of the year, as the global financial crisis started to have an impact on the world’s most populous nation.
In the third quarter, the economy grew by just nine per cent, the first time since the fourth quarter of 2005 that quarterly growth slipped into single digits.
Mr Williams said the government was hoping the move would boost investor confidence.
‘Past interest rate cuts have had a positive impact on equity markets but it tends only to last for a few days,’ he said.
Mr Chen Xingdong, a Beijing-based economist with BNP Paribas, agreed the rate cut would not be very helpful.
‘Investors do not make decisions based on interest rates,’ he said.
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