The People’s Bank of China on Friday announced a 25 basis-point cut in the benchmark lending rate, while reserve-requirement ratios for lenders were reduced by 50 basis points.
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But an editorial in Monday’s edition of “China Daily”, which is published by the government, said that China’s dedicated focus on promoting growth has led to leaders to ignoring the effects of dependence on heavy industry powered by cheap, but dirty coal. At present the Chinese central bank is cutting rates to bolster economic activity, knowing that this will cause capital outflows to continue. In Hong Kong, the benchmark Hang Seng index elevated 0.7%.
Jin Zhongxia, executive director for China on the worldwide Monetary Fund’s policymaking board, told the Shanghai Securities News that China will increasingly rely on the interbank market to set bank deposit rates and interest rates.
The central bank also removed the ceiling on deposit rates, which enables banks to set deposit rates freely, an important step toward full interest rate liberalization. France’s CAC-40 index was off 0.5 percent at 4,898.88 while Germany’s DAX gained 0.3 percent to 10,829.25.
While rate cut and lowering of reserve requirements are expected to provide a few liquidity for the economy, it will also push down Chinese currency yuan, making China more competitive in terms of exports.
The yuan largely held steady on Monday even though the dollar index had risen sharply on Thursday and Friday.
“Money was already pretty loose last week before the rate cut, so I don’t actually understand why they needed to do this rate cut now”, said a money trader at municipal bank in Shanghai, adding that she suspected the decision had more to do with supporting consumer prices and other macroeconomic issues. Grim industrial production and export data in Japan have lifted hopes its central bank will introduce more stimulus measures at its policy meeting this week.
China will be able to keep annual economic growth at around 6-7 percent over the next three to five years, a top People’s Bank of China (PBOC) policymaker said on Saturday, a day after the bank cut interest rates for the sixth time in less than a year.
The Australian dollar soared to as high as $0.7296 late Friday immediately following China’s announcement. 51 earlier Monday, marking its strongest level against the Japanese currency since late August. In the last 26 days, the energy sector has added 12.6% and the materials sector 9.9%.
The price of gold was up 0.2% at $1,164.30 a troy ounce.
Wang Tao, chief China economist at UBS, said such reforms include refraining from the “make whole” rescue for distressed assets prevalent in the market and state-owned enterprises, and improving pricing tools in monetary policies.
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AgBank was the first major Chinese bank to report third-quarter profit, which was barely positive at 1% year-on-year growth, after falling 0.8% in the second quarter.
