Chinese Central Bank cuts interest rates to spur economy
The "double cut", as Chinese financial media described the move, came four days after it wasannounced that GDP growth in the third quarter expanded by 6.9 percent, lower than thegovernment's annual target of 7 percent, according to Chinadaily.com.cn .
Also on Friday, Premier Li Keqiang told 2,600 officials at the Central Party School that thegovernment still has many policy weapons to maintain steady economic growth. In particular, he mentioned a "rational use" of methods such as cutting interest rates and theRRR. The People's Bank of China－the central bank－lowered the one-year benchmark banklending rate by 25 basis points to 4.35 percent and the benchmark rate for one-year bankdeposits by the same margin to 1.5 percent, effective from Saturday. The bank also cut the RRR by 50 basis points for all banks, taking it to 17.5 percent for thecountry's biggest lenders. Chinese financial information website Hexun.com said the "double cut" can provide amaximum of 900 billion yuan ($140 billion) in additional liquidity to the Chinese investmentmarket. Buoyed by China's decision, announced late in the evening in Asia, European shares movedhigher and the Chinese offshore yuan rate fell against the US dollar, hitting a four-week low of6.3958. China market analysts said the "double cut" may help to stimulate economic growth in the lasttwo months of the year. However, it is impossible for the country to see a quick turnaround reminiscent of itsmanufacturing-led growth in the past because that was not what China really required. Zeng Gang, a banking researcher at the Chinese Academy of Social Sciences, said the mainaim of the "double cut" is to stop the "undesirable trend" seen in the third quarter fromdeteriorating. Mark Williams, chief Asia economist at Capital Economics, said China will probably cut itsbenchmark interest rates and the RRR once more before the end of the year to furtherstimulate growth. In his speech to the Central Party School－the highest official training institution－Premier Liadmitted that the Chinese economy faces many difficulties, in both domestic and overseasmarkets. "Our progress has not been easy. Our difficulties cannot be underestimated, but ourconfidence should not be shaken," he said. There is great potential for economic growth in many sectors, including the ongoingurbanization process, the large domestic market, and the demand for infrastructureconstruction in less-developed regions, Li told the officials. "When we went to poverty-stricken areas in central and western regions, nearly all thefarmers complained of a lack of water, of drought and poor road conditions," he said. "Sothere is great potential for improving infrastructure." He pledged that the government will continue to advocate entrepreneurship to create morejobs, encourage innovation and upgrade the economy. Agencies contributed to this story.
