Hong Kong shares close down after China rate cut

But the move also has implications for how China’s transformation away from an export and investment led economy to a consumption-led economy plays out. The Shanghai benchmark fell in the single trading session after three of the last four rate cuts before Friday’s.

China began interest rate liberalization past year, gradually widening the floating range for the benchmark deposit rate set by the People’s Bank of China (PBOC), the central bank. Coming on the heels of the European Central Bank hinting at further easing and with the Bank of Japan deciding policy this week, the move underscores policy divergence with the United States, where traders put the odds of the Federal Reserve raising rates Wednesday at just 6 per cent.

The People’s Bank of China lowered its benchmark interest rates by 25 basis points, alongside a half-percentage cut in the reserve requirement ratio, to jumpstart a slowing economy.

The Shanghai Composite Index SHCOMP, +0.50% was up 0.7%, bringing its gains from the bottom of its summer selloff on August 26 to roughly 15%. The Shanghai Composite Index erased declines as technology and defense companies rallied.

“The thrust of the new plans will be on maintaining economic growth, creating nationwide integrated markets, developing rural areas, protecting the environment and widening use of new energy, promoting the public services and opening up services market”, said a research note from Suzhou-based Soochow Securities Ltd. Assuming China meets its official growth target of around 7 per cent this year, it would require an annual GDP growth rate of 6.56 per cent between next year and 2020, said the National Development Reform Commission.

He added, “The market is expecting more of the same from China going forward as the domestic economy continues to struggle despite the succession of rate cuts”. It was last up 0.2% in early Asia trade at $0.7226. The measure rose for a seventh day Friday to the highest level this month.

Friday’s monetary policy announcement by the Bank of Japan will also be closely watched.

The yen added 0.3 per cent to 121.14 per dollar Monday. Britain’s FTSE 100 shed 0.2 per cent to 6.434.46. The Australian dollar, a barometer of how investors feel about China’s industrial growth prospects, fell 0.08% to 0.7237.

The PBOC’s latest move came as Chinese savers move their deposits to higher-return wealth management products from non-bank companies, such as those offered by IT giants Alibaba and Tencent.

The central bank has had a tense relationship with the foreign exchange market in recent months, intervening repeatedly both onshore and off to keep the yuan stable and by extension discourage capital flight, even as it positions the currency for potential inclusion in the worldwide Monetary Fund’s currency basket.

The South Korean won shed 0.80%, Indonesia’s rupiah eased 0.28%, and the Malaysian ringgit was 0.32% lower.