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Markets react positively to China rate cut
Asian markets were bolstered by China’s central bank decision late last Friday to ease monetary policy.
The People’s Bank of China (PBOC) cut benchmark interest rates for the sixth time in 12 months in a bid to support an economy which is forecast to grow at its slowest annual rate in 25 years.
The move came a day after the European Central Bank indicated it would extend its quantitative easing program and cut its deposit rate in a bid to boost the Eurozone’s sluggish recovery.
The PBOC’s actions, combined with the ECB announcement and market doubts over the US Federal Reserve’s commitment to raise interest rates this year, highlight a wider nervousness in official circles over the health of the global economy.
Expectations for global growth have already been revised down to 3.1 per cent in 2015, the lowest International Monetary Fund forecast since 2009, and analysts are concerned that prospects for next year are also dimming.
The PBOC said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent and the one-year benchmark deposit rate to 1.5 per cent — its lowest on record — from 1.75 per cent.
The central bank also cut the share of customer deposits banks must hold in reserve, injecting Rmb560bn ($90bn) of cash into the banking system to counteract the cash drain from capital outflows in recent months. The required reserve ratio was lowered by 0.5 percentage points to 17.5 per cent.
The PBOC’s actions are the latest in a string of domestic interest rate reductions and injections of credit into the Chinese economy, designed to raise lending and spending by reducing financing costs for home mortgages and loans to big companies.
Official figures released earlier this week showed China’s economy expanded at its slowest pace since 2009 in the third quarter. The data showed the challenges facing China’s leaders in achieving their growth target of around 7 per cent for the year.
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