RPT-China cuts interest rates by 108 basis points
Wed Nov 26, 2008 3:55am EST
BEIJING, Nov 26 (Reuters) - China's central bank cut banks' benchmark lending and deposit rates by 1.08 percentage point on Wednesday, the fourth cut since mid-September.
The cost of one-year bank loans will fall to 5.58 percent from 6.66 percent, while the benchmark one-year deposit rate falls to 2.52 percent from 3.60 percent, the People's Bank of China (PBOC) said.
The cut in interest rates takes effect on Thursday, the central bank said on its website (www.pbc.gov.cn).
The cut in the lending rate was the biggest since October 1997.
The PBOC said the easing was meant to ensure sufficient liquidity in the banking system to ensure growth.
The central bank also cut interest rates on Oct. 29, Oct. 8 and Sept. 15.
The PBOC is also lowering banks' required reserves. The requirement for big banks will decrease by 1 percentage point, while that for smaller banks will be cut by 2 percentage points, effective Dec. 5.
The five biggest banks will have to hold 16.0 percent of their deposits in reserve at the PBOC, down from 17.0 percent. The requirement for other lenders drops to 14.0 percent from 16.0 percent.
The PBOC last cut required reserves on Oct. 8. (Reporting by Eadie Chen and Zhou Xin; Editing by Alan Wheatley)
Latest Updates
26 November 2008
XinHua News
China central bank cuts interest rates by 1.08 percentage points
2008-11-26 17:08:03
BEIJING, Nov. 26 (Xinhua) -- China's central bank slashes the lending and deposit rates by 1.08 percentage points as of Thursday in the latest effort to stimulate economy.
Editor: Du Guodong
Reuters
UPDATE 1-China delivers big rate cut to support growth
Wed Nov 26, 2008 4:22am EST
(Adds details, reaction)
By Zhou Xin and Eadie Chen
BEIJING, Nov 26 (Reuters) - China lowered interest rates on Wednesday for the fourth time since mid-September, stepping up the pace of monetary easing to help cushion the blow of the global financial crisis the world's fourth-largest economy.
The People's Bank of China (PBOC) said the benchmark rates for one-year loans and deposits will both fall by 1.08 percentage points, bringing the cost of one-year borrowing to 5.58 percent and the rate on one-year certificates of deposit to 2.52 percent.
The cut in the lending rate was the biggest since October 1997; that in the deposit rate was the biggest since June 1999.
The central bank also reduced the proportion of deposits that banks must hold in reserve, giving them more money to lend to businesses reeling from a drop in export demand and a downturn in the property market.
The cuts come on the heels of a 4 trillion yuan ($586 billion) stimulus package unveiled on Nov. 9 designed to ramp up investment in short order in roads, railways, affordable housing and an array of public works.
"They are continuing what is the best policy prescription in these times, which is increased fiscal spending and easier monetary policy. This is a good move," said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong.
"China is out to save itself here. The rest of Asia is strong, but all policy makers in the region and on the planet need to take their own steps. China is showing good leadership by what it has done."
Like other countries, China has watched its economy slow dramatically since the bankruptcy of Lehman Brothers in mid-September opened a new, dark chapter in the financial crisis, shaking confidence and prompting banks to cut credit lines.
Industrial growth slumped last month to a seven-year lows; exports, imports, retail sales and fixed-asset investment all weakened, while power generation fell 4 percent from a year earlier, the first drop in a non-holiday month for a decade.
CUTS ACROSS THE BOARD
The cut in interest rates takes effect on Thursday, the central bank said on its website (www.pbc.gov.cn).
The PBOC said the easing, which follows interest rate cuts on Oct. 29, Oct. 8 and Sept. 15, was meant to ensure sufficient liquidity in the banking system to ensure growth.
To that end, it also carried out big cuts in banks' reserve requirements. The ratio for big banks will decrease by 1 percentage point, while that for smaller banks will be cut by 2 percentage points, effective Dec. 5.
The five biggest banks will have to hold 16.0 percent of their deposits in reserve at the PBOC, down from 17.0 percent. The requirement for other lenders drops to 14.0 percent from 16.0 percent.
Leaving no doubt about its message of easing, the PBOC also cut the one-year relending rate by 108 basis points, and decreased the interest rate payable on required reserves and excess reserves by 27 basis points.
"All my colleagues were shocked by such a big easing. It signals the government may believe the economic situation is really serious for it to call for such a drastic move," said Liu Dongliang, a currency analyst at China Merchants Bank in Shenzhen.
"No doubt it will be negative for the yuan's exchange rate in the medium and long run, though the central bank may work to keep the currency stable in coming days." (Additional reporting by Beijing, Shanghai and Hong Kong bureaus; Editing by Jason Subler)
Channel News Asia
Steep rate cut in China to boost economic growth
Posted: 26 November 2008 1731 hrs
BEIJING - China's central bank announced on Wednesday a steep cut in its interest rates -- by four times the usual margin -- in a signal that it would pull all the stops to boost weakening economic growth.
The benchmark one-year lending and deposit rates will both be reduced on Thursday by 108 basis points, compared with the usual 27 basis points in
Chinese rate cuts, the People's Bank of China said.
"It means the government is moving on more fronts to stimulate growth," said Stephen Green, a Shanghai-based economist with Standard Chartered.
It was China's fourth interest rate cut since mid-September, and the deepest rate cut since October 1997.
Earlier this month, China announced an unprecedented four-trillion-yuan (590-billion-US-dollar) spending package to lift the economy, which grew at its slowest pace in five years last quarter.
The central bank move came a day after the World Bank said it expected China's economy to grow by 7.5 per cent in 2009, a 19-year low.
"The economic situation now is even worse than in 1998," said Xing Zhiqiang, a Beijing-based analyst with China International Capital Corporation, referring to the year just after the outbreak of the Asian financial crisis.
He said China was likely to see deflation -- or falling prices -- from next year.
"The bubbles in international commodity prices have burst and the prices of many raw materials are falling," he said.
"Moreover, the slowdown in China's own economic growth has gotten worse, triggering overcapacity and unemployment, which are likely to cause deflation as well."
After the rate cut, one-year lending rates in China will be 5.58 per cent, while one-year deposit rates will drop as low as 2.52 per cent.
With inflation at 4.0 per cent in October, it means that borrowing money from the bank is very cheap.
At the same time, putting money in the bank will be a guaranteed way to lose cash, as the real interest rate is defined as the deposit rate minus inflation.
This will provide the Chinese with a strong incentive to spend, boosting domestic consumption.
Even so, the impact may be limited, since interest rate cuts tend to mean less in China than in more developed economies, because households do not generally borrow money for spending purposes.
"To be honest, it probably helps with the margin. But at the moment the bigger impact is going to come from fiscal policy," said Standard Chartered's Green.
However, the steep cuts could also serve the purpose of making debt service cheaper, paving the way for government bond issues to finance the ongoing aggressive fiscal policies, economists said.
The central bank also announced cuts in the amount of money banks must keep in reserve.
Beginning from December 5, large banks will see their required reserve ratio drop by one percentage point, while it will go down by two percentage points for smaller financial institutions.
The reserve ratio cut will release an estimated 700 billion yuan into the banking system, analysts said.
- AFP/ir
XinHua News
China central bank cuts interest rate, reserve requirement to stimulate economy
2008-10-08 19:14:31
BEIJING, Oct. 8 (Xinhua) -- China's central bank on Wednesday announced cuts in both the interest rate and reserve-requirement ratio in the latest effort to boost the domestic economy amid worries over the deepening global financial crisis.
The deposit and lending rates would be lowered by 0.27 percentage points from Thursday and the reserve-requirement ratio would be down by 0.5 percentage points from Oct. 15, the People's Bank of China (PBOC) said.
"This was mainly out of concerns over an economic slowdown," said Ba Shusong, deputy chief of the Finance Research Institute under the Development Research Center of the State Council.
"The rate cut was expected as the world was faced with a cycle of interest rate cuts," he told Xinhua.
OUT OF SLOWDOWN CONCERNS
The loosening in monetary policy, the second such move in less than a month, highlighted the government's rising concern over the slowing economy and slumping capital market.
The PBOC cut the benchmark one-year lending rate by 0.27 percentage points on Sept. 16, the first rate cut in six years. It also lowered the reserve requirement at medium- and small-sized lenders by 1 percentage point as of Sept. 25.
Tang Min, China Development Research Foundation deputy secretary, echoed Ba's viewpoint.
Tang said the government made the move mainly out of concerns over domestic problems. "The deepening U.S.-originated credit crisis has impacted the psychology of Chinese and also the real economy," he told Xinhua.
Investors, gripped by lingering fears of global economic downturn, dumped equities to drive the stock market down 66 percent from its peak last October.
China's gross domestic product (GDP) expanded 10.1 percent in the second quarter of the year, marking a deceleration for four consecutive quarters.
Its exports, a major driver behind the economy, reported slowing growth this year as the credit crisis reduced overseas demand for its goods. This has led to the closures of tens of thousands of local exporters and also job losses.
Local businesses bore the brunt of higher borrowing costs and were even finding it difficult to get credit after last year's tightening measures aimed at curbing inflation and averting economic overheating.
The easing in inflation has given room for the authorities to loosen monetary policy. The consumer price index rose 4.9 percent in August, off from the 12-year-high of 8.7 percent in February.
"Inflation is no longer a threat with the declining commodities prices," Tang said.
The monetary policy has been starting to loosen and the trend would not change in the short term, said Zhuang Jian, an Asian Development Bank (ADB) economist. "The whole world doesn't have strong confidence in the economic outlook."
TAX CUT TO BOOST DEMAND
In another move to boost domestic demand, the State Council, China's Cabinet, said it would scrap the 5 percent individual income tax on savings interest earnings starting on Thursday.
China began levying a 20 percent individual income tax on interest earnings in 1999 to narrow the income gap and encourage consumption and investment. The tax rate was slashed to 5 percent on Aug. 15, 2007.
The income tax cut was a must as it would help alleviate the erosion on personal income by high prices, especially given the cut in the deposit rate, Li Yang, head of the Finance Research Institute under the Chinese Academy of Social Sciences.
The tax cut, together with lower borrowing costs, would boost domestic demand, an increasingly more important driver of economy in the global credit crisis, Zuo Xiaolei, China Galaxy Securities chief economist, said.
GLOBAL COORDINATED RESPONSE
The move was also a timely response to the rate cuts by other major central banks and part of a coordinated effort to stem the global crisis, Tang said.
Six other major central banks, including the U.S. Federal Reserve, slashed interest rates on the same day to cope with the current financial crisis.
The U.S. Federal Reserve lowered its target for the federal funds rate by 0.5 percentage points to 1.5 percent. The Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank cut by the same margin to 3.75 percent.
Central banks of Canada, Sweden and Switzerland took similar actions. The Bank of Japan said it strongly supported these policy actions.
Australia's central bank on Tuesday slashed the interest rate by 1 percentage point, the largest cut since 1992.
Editor: Du Guodong
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