China cuts interest rates

Nevertheless stocks plunged further on Tuesday, marking the biggest four-day rout since 1996

China has cut interest rates for a fifth time in nine months in a fresh effort to boost growth in the real economy following the stock market rout, which extended into Tuesday.

The central bank said on Tuesday that the benchmark rate for a one-year loan will be cut by 0.25 percentage point to 4.6 per cent. The one-year rate for deposits will fall by a similar margin to 1.75 per cent.

The People’s Bank of China (PBoC) or the central bank also stepped up liquidity for lending by reducing the minimum reserves that banks are required to hold by 0.5 percentage point.

The rate cut is meant to drive down financing costs so as to benefit small- and medium-sized enterprises and support the development of the real economy, the PBOC said. The move was widely anticipated after economic indicators showed weaknesses in manufacturing and exports by larger margins than expected.

Besides the five rate cuts since late November, the PBOC had earlier removed its 75-percent loan-to-deposit ratio requirement to free more liquidity for lending.

Earlier on Tuesday, the central bank injected 150 billion Yuan or $23.43 billion, into the inter-bank market during open market operations, the state run China Central Television (CCTV) reported.

Nevertheless, stocks plunged further on Tuesday, marking the biggest four-day rout since 1996 amid concerns that the government is withholding intervention with market support measures.

The benchmark Shanghai Composite Index on Tuesday fell 7.6 per cent to close at 2,964.97 — dropping below the 3,000 level for the first time in eight months. The more than 1,000 stocks that were badly hit included energy giants China National Petroleum Corp and Sinopec Group. Stocks for banks, including CITIC Bank, Bank of Communications, Everbright Bank, Ningbo Bank and Nanjing Bank plunged by more than 9.5 per cent.

On Monday, the Shanghai index had suffered its biggest one-day plunge since 2007, triggering the biggest global wave of sell-offs since the 2008 financial crisis. But Tuesday’s drop did not impact rest Asian markets notably South Korea, Taiwan and Australia, which staged a recovery.

Source: The Hindu


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