China cuts interests rates - again
October 23, 2015
China's central bank on Friday announced further stimulatory steps to jumpstart its flagging economy, cutting interest rates and lowering the amount of cash banks must keep on hand.
It is the sixth time in less than a year that the People's Bank of China (PBoC) has shaved its interest rates, hoping to nudge consumers and businesses to lend and spend more.
The PBoC said on its website that it was reducing the one-year benchmark bank lending rate by 25 basis points to 4.35 percent. The one-year benchmark deposit rate was also lowered by 0.25 percentage points to 1.50 percent.
In addition, the cash reserves banks are required to hold in order to ensure liquidity - known as the reserve requirement ratio (RRR) - were lowered. By slashing that ratio by 50 basis points to 17.5 percent, the PBoC sought to free up money for the banks to lend out.
Waiting for a turnaround
The move comes five days after data showed the world's second-largest economy grew by just 6.9 percent between July and September, down from 7.3 percent a year earlier. The drop was widely expected, but still sent chills through international markets as China's GDP dipped below the psychologically important 7-percent mark for the first time since the 2008/2009 global financial crisis.
While experts welcomed Beijing's decision, they remained skeptical it would do the trick.
"The People's Bank has delivered another jolt of stimulus," analysts at Capital Economics wrote in a note to clients. But, they added, they were "still waiting for clear evidence of an economic turnaround."
"We are retaining our forecast that benchmark rates and the reserve requirement ratio will both be cut once more before the end of the year, with a further move in both early in 2016."
The precarious state of China's economy will also top the agenda, when the ruling Communist Party's top brass descends on the capital next week for the so-called Fifth Plenum - a four day policy-setting meeting, aimed at mapping out the government's main economic and development goals for 2016-2020. Observers expect the government to lower its growth target to 6.5 percent from the 7 percent agreed in 2011.
pad/hg (AFP, Reuters)