The one-year lending rate will drop by 25 basis points to 4.6 per cent effective Wednesday, the Beijing-based People’s Bank of China said on its website Tuesday, while the one-year deposit rate will fall a quarter of a percentage point to 1.75 per cent. The required reserve ratio will be lowered by 50 basis points for all banks to cover liquidity gaps, it said.
Advertisement
China’s fifth interest rate cut since November lifted global markets, which recovered much of their losses after plummeting in response to China’s Black Monday.
More than US$5 trillion has been erased from the value of stocks worldwide since the devaluation of the yuan on August 11, which deepened concerns over a malaise in the world’s second- biggest economy.
Various other factors are contributing to the market turbulence, including the speculation over a U.S. interest rate hike that could result in the pullout of funds from currency and stock markets in emerging economies.
But until today there was a plausible argument that what happened on its financial markets was not of great significance for the rest of us, because those markets were still relatively closed to foreign investors and were subject to significant state meddling. “They’ll probably feel under pressure to do something which is not going to disappoint markets, but that will require them to come in large and eat up whatever ammunition they have left”.
“Speculators are selling assets that seem the most vulnerable”.
The move comes after Chinese stock indexes nosedived more than 7 percent, hitting their lowest levels since December, following their more than 8 percent plunge on Monday. Economists are already debating whether the Fed will delay raising interest rates or if the European Central Bank will bolster its quantitative easing program. “The news of the Yuan raises suspicion regarding the economic growth outlook for China, that’s taking its toll on the markets”, Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told Reuters.
China has halted intervention in the stock market so far this week as policy makers debate the merits of an unprecedented government campaign to prop up share prices, according to people familiar with the situation. China needs extra liquidity to prevent systemic risks.
After decades of rapid growth, China is running out of steam.
Slowing growth, slumping stocks, suspect data: the world’s second-largest economy is sending shockwaves through global markets, and flailing authorities appear increasingly asleep at the wheel, say analysts.
Advertisement
-With assistance from Kevin Hamlin in Beijing.
