China’s central bank yesterday said it had cut two key interest rates to historic lows, in the latest move by Beijing to boost sluggish spending and kickstart the world’s second-largest economy.
The cuts come just days after the country posted its slowest quarterly growth in a year and a half, underlining the deep economic woes the country faces.
Leaders are targeting annual growth of five percent this year, but that goal is being challenged by weak consumption and a prolonged and debilitating debt crisis in the colossal property sector.
Photo: AFP
The one-year loan prime rate (LPR), which constitutes the benchmark for the most advantageous rates lenders can offer to businesses and households, was cut from 3.35 percent to 3.1 percent.
The five-year LPR, the benchmark for mortgage loans, was cut from 3.85 percent to 3.6 percent.
Both rates were last reduced in July and are sitting at all-time lows.
The economy grew 4.6 percent year-on-year in the third quarter, its slowest rate in a year and a half, Chinese government data released on Friday showed.
Authorities acknowledged a “complicated and severe external environment... as well as new problems of domestic economic development.”
The data came after weeks of announcements and news conferences about a stimulus plan, although investors say they are still waiting to see more details.
The country’s top banks on Friday cut interest rates on yuan-denominated deposits for the second time this year in another potential boost to spending.
People’s Bank of China Governor Pan Gongsheng (潘功勝) said that authorities were considering a further cut to the amount commercial lenders must hold in reserve before the end of the year.
Months of sluggish spending have raised fears that China would dip back into deflation after it ended a months-long stretch of falling prices early this year.
Pinpoint Asset Management Ltd (保銀私募基金管理) president and chief economist Zhiwei Zhang (張智威) said yesterday’s rate cut was “an encouraging sign.”
“The monetary policy has clearly shifted to a more supportive stance since the press conference on September 24. The real interest rate in China is too high,” he said.
Meanwhile, the central bank yesterday also conducted its first operations under a swap facility designed to bolster the stock market, exchanging assets worth 50 billion yuan (US$7 billion) with brokerages, fund companies and insurers.
The authorities said 20 institutions participated in the swap operations with a fee rate of 20 basis points.
Under the swap scheme, initially worth 500 billion yuan, brokerages, asset managers and insurers can have easier access to funding by exchanging risk assets such as exchange-traded funds and blue-chip stocks for highly liquid assets such as treasury bonds and central bank bills.
The 20 participants include China International Capital Corp (中國國際金融), Citic Securities Co (中信證券), China Asset Management Co (華夏基金管理) and E Fund Management Co (易方達基金管理).
Additional reporting by Reuters
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