China cuts interest rates for fifth time since November

The People’s Bank of China, the country’s central bank, on Tuesday morning moved to devalue its tightly controlled currency, the Yuan, following weaker than expected Chinese import and Export data over the weekend.

The reserve requirement ratio – the amount of cash the banks must hold in reserves – has also been dropped by 50 basis points and will take effect from 6 September, to spur further lending and spending, while the benchmark one-year savings rate has been cut by 25 basis points to 1.75 per cent. “Using monetary easing to drive stocks and the economy is a method more acceptable to global capital markets“. A global sell-off in riskier assets quickened Monday as commodity prices sank to a 16-year low and emerging market currencies weakened. The transfer comes after a session through which the Shanghai Composite.

The bank said financial markets had “recently displayed relatively large fluctuations”.

“Speculators are selling assets that seem the most vulnerable”.

China has cut its main interest rate to boost growth in its economy.

The People’s Bank said that the interest rate cut was to reduce “the social cost of financing to promote and support the sustainable and healthy developments of the real economy”. Andy Xie, a Shanghai-based independent economist formerly with Morgan Stanley, told AFP authorities should cut taxes by up to two trillion yuan ($312 billion) for several years, citing similar moves by the United States in 2008 in response to the global financial crisis. “The litmus test will come overnight, however, and the efficacy of the… cut in boosting the domestic stock market“.

China cut interest rates for a fifth time in nine months Tuesday in a new effort to shore up slowing economic growth, and its top economic official tried to dispel fears its yuan might fall further in value.

“It is not the role of the central bank to elevate sentiments unduly, to deliver booster shots to the stock market so that it can soar for a while, only to collapse when reality hits”, he told a conference in Mumbai on Monday.

In Britain over the last six years, he said, the level of company debt and household debt had slowly begun to go down, but the increase in public debt had “more than offset that”. China needs extra liquidity to prevent systemic risks. Communist leaders say they can tolerate lower headline growth so long as the economy generates enough jobs.

“There are pockets of extreme weakness in China’s economy but also areas of strength”, said Mark Williams, chief Asia economist for Capital Economics in London.

-With assistance from Kevin Hamlin in Beijing.