China | China cuts interest rate for 4th time to boost economy

China cuts interest rate for 4th time to boost economy

June 27, 2015 8:03 AM (UTC+8)

 

China’s central bank announced Saturday the fourth round of interest cuts in seven months and lower deposit-reserve ratios for banks to lend to small and rural businesses, as Beijing tries to shore up the country’s sluggish economy, AP reported.

The People's Bank of China said it would cut the rate on a one-year loan by commercial banks by 0.25 percentage point to 4.85 percent
The People’s Bank of China said it would cut the rate on a one-year loan by commercial banks by 0.25 percentage point to 4.85 percent

The People’s Bank of China said it would cut the rate on a one-year loan by commercial banks by 0.25 percentage point to 4.85 percent. The interest rate paid on a one-year deposit would be lowered by 0.25 point to 2 percent.

Rates were cut on Nov. 22, March 1 and then May 11. The new rates take effect Sunday.

The central bank also said it would lower the deposit-reserve ratios by 50 points for banks that are lending to small businesses and agriculture-related businesses, a move that would boost lending to the private sector.

“The cuts will support the adjustment of economic structure, support the real economy, and lower financing costs,” said Yao Yudong, director for the People’s Bank Finance Research Institute, in an interview by the state broadcaster China Central Television.

“The prudent monetary policy remains unchanged,” Yao said.

The state-owned banking industry lends mostly to state companies, so the new measure is expected to inject more credit into rural and small businesses.

“The purpose of the oriented lowering of deposit-reserve ratio would boost financial institutes’ abilities to support rural, agricultural and small businesses,” according to an explanatory note posted on the central bank’s website. “It would improve the key areas and weak links in the national economy. It is conducive for the financial institutes to support entrepreneurship.”

Communist leaders have affirmed their commitment to a “new normal” of slower, more sustainable growth but are very sensitive to the potential for political unrest in the event unemployment spikes up.

The country’s economic growth has slowed to the lowest level since the aftermath of the 2008 global crisis. In the past two weeks, its stock market ” which had been performing extraordinarily well ” tumbled.

The Shanghai index fell 7.4 percent on Friday, and the Shenzhen composite dropped 7.9 percent.

Premier Li Keqiang said on Friday that China is capable of “maintaining mid- to high-speed growth” despite challenges, China Daily reported.

The nation’s economic fundamentals were performing well, Li said, adding that the economy is running “within a reasonable range.”

He said major economic indexes since May, including those for industrial production, investment, consumption, and exports and imports have remained stable or increased, while employment has also improved.

The premier was speaking during a seminar at the Great Hall of the People with scholars, politicians and business leaders attending a global think tank summit.

He said the government would continue macro controls and strengthen targeted adjustment, along with governance reform and efforts to encourage mass entrepreneurship and innovation.

“We have the capability and conditions to keep the Chinese economy growing at mid- to high speed,” he said.

 

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