China cuts interest rates to halt stock market crash

It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5%.

19 April, 2015 -Reserve requirement ratio cut by 1%.

To keep China’s economy growing at around 7 per cent, as targeted by the government, economists widely expect China’s central bank to lower the RRR by at least another 50 basis points this year.

Underscoring the panic gripping the retail investors who dominate China’s stock markets, all index futures contracts fell by the maximum 10 percent daily limit, pointing to expectations of even deeper losses.

The PBoC has cut interest rates five times since November.

In Tuesday trading at around 11:30am (GMT), London’s FTSE 100 index was up 3.53 per cent, the CAC 40 in Paris rose 4.58 per cent and the DAX 30 in Frankfurt climbed 4.28 per cent.

Despite official estimates, backed by the International Monetary Fund, of 7 per cent economic growth in China this year, a host of informal indicators suggests that the world’s largest economy by purchasing power parity is expanding at a slower rate.

“Previous boom-bust cycles in Chinese stocks have also shown little or no connection to (apparent) economic performance”, said Miller, whose firm provides anecdotal survey information about China based on the Fed’s “Beige Book” model.

“But it is very likely that the economy will continue to be sluggish and the PMI (purchasing managers’ index, a gauge of manufacturing activity) figure will stay in contraction territory in the mid-term”, said Liu Ligang, the chief greater China economist at ANZ Bank.

China has launched new stimulus measures created to boost the country’s flagging economy.

An initial cut of 2% in the yuan’s value against the dollar was followed by two further cuts before markets saw the move as an indication of weaker than expected growth and began again to sell shares in Chinese companies.

“The litmus test will come overnight, however, and the efficacy of the reserve rates cut in boosting the domestic stock market“, they said.

China has long signaled a desire to tackle what it calls one of the “riskiest” parts of financial reform – entirely scrapping the ceiling on interest rates that lenders pay on deposits.

The offshore yuan weakened 0.4 percent last night to 6.4973 against the greenback after the cuts and stayed roughly at the 6.49 level afterwards. “The Chancellor is too complacent about the impact a slowdown” said Chris Leslie, the shadow Chancellor.

He added: ‘We do face a fundamental problem I think in the world that we piled up before 2008, primarily actually at that time on the private side, not the public side, so much debt that we really don’t know how to get rid of it now’.