Source: Xinhua
12-23-2008 08:53
Special Report: Global Financial CrisisBEIJING, Dec. 22 (Xinhua) -- China's central bank cut loan and deposit rates by 0.27 percentage points Monday, effective Tuesday, in the government's latest move to stimulate the economy.
It was the fifth time the People's Bank of China (PBOC), the central bank, has cut rates since September this year.
The benchmark one-year yuan lending rate will fall to 5.31 percent from 5.58 percent and the one-year yuan deposit rate will fall to 2.25 percent from 2.52 percent.
In the three earlier cuts in September and October, the central bank lowered interest rates by 0.27 percentage points each. In the fourth cut on Nov. 26, the PBOC slashed the lending and deposit rates by a bigger-than-expected 1.08 percentage points.
The central bank also said that as of Thursday, it will cut the bank reserve requirement ratio by 0.5 percentage points. It will be the fourth time the central bank cuts the ratio since September.
The interest rate cut came almost one week after central bank governor Zhou Xiaochuan said in Hong Kong that whether or not to further cut the rates depended on the rise of the consumer price index (CPI), the main gauge of inflation.
From now till mid-2009, there existed possibilities of further interest rate cuts, he said then.
The National Bureau of Statistics said on Dec. 11 that the country's CPI rose at a slowing annual rate of 2.4 percent in November.
The CPI rate had slowed for seven straight months because of a sharp fall in world commodity prices and sluggish demand amid the global financial crisis.
AIMING AT ENOUGH GROWTH
Zhao Quanhou, director of the financial research office of Research Institute for Fiscal Science under the Ministry of Finance, saw the fifth rate cut as a routine movement as the Chinese economic growth is expected to fall significantly in the fourth quarter.
It is aimed to further stimulate the economy, he said, adding such rate cut will probably produce some effect in the first quarter next year and generate an economic turnaround.
The economic stimulus packages announced by the government earlier needs a lot of capital, while lower interest rates will certainly reduce cost of investment, he said to Xinhua.
The Chinese government is expected to further loosen monetary policies since there is still room to cut rates, he added.
Zuo Xiaolei, China Galaxy Securities chief economist, told Xinhua that Monday's rate cut was expected and the move was aimed to make preparations for next year's economic activities.
The U.S. Federal Reserve was slashing its main interest rates and China should also take further movement, she said.
"On one hand, cutting interest rates will encourage private capital to make more investment next year; on the other hand, the government is expected to issue massive bonds next year to support construction investment," she said.
Zuo expected the Chinese central bank to continue rate cuts until mid-2009 and lower the benchmark one-year yuan deposit rate to below one percent.
"If CPI rises remain lower next year, there is much room to further cut the interest rates," she added.
The Chinese economy cooled sharply as growth in exports and property investment slowed. The growth pace was 9 percent in the third quarter, down from 10.4 percent in the first half.
As the economic growth decelerated significantly, the government announced on Nov. 9 a 4-trillion-yuan (585.7 billion U.S. dollars) stimulus package to boost the economy. Last week, it unveiled a real-estate stimulus package that emphasized low-income housing and home ownership.
Economic data released since last week showed further risks of an economic slowdown. The export-driven Chinese economy saw its November exports declining year-on-year by 2.2 percent, the first monthly decline since June 2001.
Amid the global financial crisis, the Chinese government is making every effort to achieve an 8 percent economic growth to create enough new jobs and ensure social stability.
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Editor:Xiong Qu
