Source: Xinhua

11-27-2008 08:54

Special Report:   Global Financial Crisis

by Xinhua writers Li Baojie and Han Jie

BEIJING, Nov. 26 (Xinhua) -- China's central bank has decided to slash the lending and deposit rates by a bigger-than-expected 1.08 percentage points as of Thursday in the latest strong effort to stimulate the economy.

The People's Bank of China (PBOC) said on Wednesday it would cut the benchmark one-year yuan lending rate to 5.58 percent from 6.66 percent and the one-year yuan deposit rate to 2.52 percent from 3.60 percent.

The monetary easing is aimed at "ensuring ample liquidity in the banking system and promoting stable credit growth to make the monetary policy play an active role in supporting economic growth", the PBOC said in a statement.

ANOTHER STRONG EFFORT

A rate cut was expected, but the size and timing was beyond expectation, said She Minhua, a China Securities analyst. The market was expecting a 0.54-percentage-point cut and the central bank usually cuts rates over the weekend.

"By moving ahead of market expectation, the latest moves by the PBOC seemed to be aiming at achieving the maximum effect in boosting market confidence," Tao Wang, UBS Securities economist in Beijing, said in an emailed statement.

The cut was substantially larger than the earlier three cuts, 0.27 percentage points each, since mid September. It also was the largest cut since October 1997 when the PBOC slashed the one-year borrowing cost by 1.44 percentage points to support growth to withstand the Asian financial crisis.

It was the third time the PBOC has cut the deposit rate since early October and the largest cut since June 1999.

The move followed the 4 trillion yuan (584 billion U.S. dollars) stimulus package unveiled on Nov. 9 and also other measures to bolster growth, including increases in export tax rebates and reduction in value-added tax.

The PBOC also said that as of Dec. 5, it would lower the reserve requirement ratio by 1 percentage point at the large banks and by 2 percentage points at the smaller and medium-sized banks.

The large lenders include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China.