China cuts rates and reserves
Country’s stocks extend Monday’s fall
CHINA’S central bank cut interest rates and lowered the amount of reserves that banks must hold for the second time in two months yesterday, ratcheting up support for a stuttering economy and a plunging stock market that has sent shockwaves around the globe.
The move came as Chinese stock indices nosedived more than 7 percent yesterday to hit troughs not seen since December, and after shares plunged more than 8 percent on Monday.
The latest policy easing also followed a shock devaluation in the yuan two weeks ago, a move that authorities billed as aiding financial reforms, but that some saw as the start of a gradual slide in the currency to help stumbling exporters.
“Frankly, this shows a bit of panic in my mind,” Andrew Polk, a resident economist at the Conference Board in Beijing, said.
“This is a big-bang move,” he said. “It’s meant to address some real issues and also prevailing market sentiment over the past two days.”
The People’s Bank of China (PBOC) said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.6 percent. The rate cut, the fifth since November, would be effective from today.
One-year benchmark deposit rates were also reduced by 25 basis points, while the ceiling for deposit rates with tenures of over a year was scrapped to further free up China’s interest rate market.
At the same time, the PBOC said it was lowering the reserve requirement ratio by 50 basis points to 18 percent for most big banks. The change will be effective on September 6. China’s yuan devaluation and a near-collapse in its stock markets in early summer have sparked fears that it is at risk of a hard landing that will hammer world growth.