China interest-rate cut proves surprise
September 19, 2008 · Print This Article
CHINA yesterday cut key lending rates and the reserve requirement on smaller banks to lift the economy amid easing domestic inflation and against a backdrop of American-driven global financial turmoil.
From today, the benchmark one-year lending rate will scale back by 0.27 percentage point to 7.2 percent, the People’s Bank of China said.
The move is the first interest-rate prune since China started a run of increases on October 29, 2004. During the period, the central bank has raised rates nine times. The interest rates on deposits will not change.
The reserve-requirement ratio will drop by 1 percentage point to 16.5 percent from September 25 except for the country’s big-five banks and the Postal Savings Bank.
The requirement will drop by 2 percentage points to 14 percent for financial institutions in the areas hit by the May 12 earthquake.
It is the first time the central bank has lowered the proportion that banks set aside from lending since November 1999. The bank raised the requirement 18 times between July 2006 and June this year.
“We decided to make the cuts to keep a stable and fast development of the economy by fulfilling the policy of structural adjustment,” the central bank said on its Website yesterday.
The PBOC initiatives were queried by some economists.
“I am quite surprised by the move as China’s growth is still robust and there is no signs of a significant economic slowdown,” Jan Lambregts, director and head of research Asia of Rabobank International, said yesterday. “China’s exposure to the US credit crunch is still limited.”
Lambregts said it was an early stage for the central bank to take this action as the real interest rate in China was “still very low.”
He said a wiser path may have been moves designed to help small and medium enterprises hard hit by tight monetary policies as China’s inflation fell to a slower-than-expected 4.9 percent in August.
Other economists worried that China may be deterred by a decrease in external demand. Citigroup expects a policy reversal as early as the fourth quarter.
With China’s inflation falling to 4.9 percent in August, the central bank may feel more inclined to stimulate SMEs with lending-rate cuts.
The longer the loan life, the smaller the decrease. The six-month lending rate drops the most at 0.36 percentage point while the five-year-plus by the least at 0.09 percentage point.
Shanghai Daily
Tags: chinaparking website, chinese car park, mechanical parkingRelated Posts:
Comments
Got something to say?
You must be logged in to post a comment.