DRAGON CUTS RATES

After-market announcement fails to stop rout in Chinese shares, but global stocks reverse losses

China’s central bank cut interest rates and lowered the amount of reserves banks must hold for the second time in two months on Tuesday, ratcheting up support for a stumbling economy and a plunging stock market that has sent shockwaves around the globe.

Global shares, bond yields and oil prices rallied, while commodities, including nickel and copper rose from multi-year lows hit on Monday, as investors looked to the policy easing as a move to stabilise China’s battered stock market, which has nosedived over 15% this week.

The cuts followed a devaluation in the yuan two weeks ago, a move authorities billed as aiding financial reforms, but which some saw as the start of a gradual slide in the currency to help Chinese exporters.

“This shows a bit of panic,” Andrew Polk, resident economist at the Conference Board in Beijing, said of Tuesday’s cuts in interest rates and the reserve requirement ratio — the second since June. “This is a big-bang move. It’s meant to address some real issues and also prevailing market sentiment.”

The People’s Bank of China said it was lowering the one-year benchmark bank lending rate and the deposit rate by 25 basis points each (see graphic).

“There is still downward pressure on China’s economic growth,” the central bank said. “There is also relatively big volatility in global markets, which require more flexible usage of monetary policy tools,” it added.

Some analysts welcomed the moves as overdue support for the world’s second-largest economy, but warned it may not be enough to shield China from a slowdown that many suspect is much sharp- er than official figures suggest.

Chinese Premier Li Keqiang said there was no basis for continued depreciation in the yuan. China’s economic fundamentals had not changed, he added.