China cuts rates 0.27 point, 5th reduction in 3 months

December 22, 2008

It was the fifth time the People's Bank of China (PBOC) had cut rates since September.

The benchmark one-year yuan lending rate will fall to 5.31 percent from 5.58 percent and the one-year yuan deposit rate will fall to 2.25 percent from 2.52 percent.

In the three earlier cuts in September and October, the central bank lowered interest rates by 0.27 percentage points each. In the fourth cut on Nov. 26, the PBOC slashed the lending and deposit rates by a bigger-than-expected 1.08 percentage points.

The central bank also said that as of Thursday, it will cut the bank reserve requirement ratio by 0.5 percentage points. It will be the fourth time the central bank cuts the ratio since September.

Zhao Quanhou, director of the financial research office of Research Institute for Fiscal Science under the Ministry of Finance, saw the fifth rate cut as a routine movement as the Chinese economic growth is expected to fall significantly in the fourth quarter.

It is aimed to further stimulate the economy, he said, adding such rate cut will probably produce some effect in the first quarter next year and generate an economic turnaround.

The economic stimulus packages announced by the government earlier needs a lot of capital, while lower interest rates will certainly reduce cost of investment, he said.

The Chinese government is expected to further loosen monetary policies since there is still room to further cut rates, he added.

China announced a 4 trillion yuan (584.8 billion U.S. dollars) stimulus package last month to boost the economy. Last week, it unveiled a real-estate stimulus package which emphasized low-income housing and home ownership.

The Chinese economy cooled sharply as growth in exports and property investment slowed. The growth pace was 9 percent in the third quarter, down from 10.4 percent in the first half.

Economic data released this week showed further risks of an economic slowdown. Exports in November slid 2.2 percent year on year, the first monthly decline since June 2001.

Source: Xinhua