World Economy
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China Cuts Rates, Reserve Ratio

China  Cuts Rates, Reserve  Ratio China  Cuts Rates, Reserve  Ratio

China’s central bank cut interest rates and lowered the amount of reserves banks must hold for the second time in two months on Tuesday, ratcheting up support for a stuttering economy and a plunging stock market that has sent shockwaves around the globe.

The moves came after Chinese stocks tumbled again on Tuesday, as investors despaired at the lack of policy action from Beijing in response to recent data suggesting the downturn in the world’s second-largest economy was deepening, Reuters reported.

The People’s Bank of China said it was cutting the one-year benchmark bank lending rate by 25 basis points to 4.6%, cutting one-year benchmark deposit rates by the same amount, and reducing reserve requirements by 50 basis points to 18% for most big banks.

Major Chinese stock indexes nosedived more than 7% on Tuesday, hitting their lowest levels since December, following a more than 8% plunge on Monday.

The slump had resumed last week despite Beijing’s efforts to arrest a 30% crash earlier in the summer with hundreds of billions of dollars of state-backed share purchases.

This time, the government appeared to be sitting on its hands until Tuesday’s response, which aimed more at shoring up economic fundamentals than underpinning stocks.

China, one of the main engines of the world economy, has overtaken Greece at the top of the worry list of global investors, who fret its economy is growing at a much slower pace than the official 7% target for 2015.

This week’s steep declines have taken Chinese stocks into negative territory for the year to date, although Leland Miller, president of China Beige Book International, pointed out that Chinese equity markets have shown little correlation with the real economy, either on the way up or the way down.

 

Financialtribune.com