labels: Stock markets - world, World economy
China cuts lending rates, reserve ratio for banks as global financial markets sink news
15 September 2008

Mumbai: China's central bank today announced a reduction in its benchmark lending rate by 0.27 percentage point to 7.20 per cent, amidst mayhem in global financial markets.

The People's Bank of China also announced a cut the cash reserve requirement for all lenders except the country's five biggest banks and the Postal Savings Bank by one percentage point – the first time since 1999.

The amount of cash reserves that banks must set aside as deposits by is still high at 16.5 per cent.

The central bank, however, left the base one-year deposit rate unchanged at 4.14 per cent.

The reduction in lending rates is effective 16 September while the reduction in reserve requirements would take effect from 25 September, the bank said in a website release.

The PBOC said the aim of the easing of reserve requirements,  a partial reversal of a 18 consecutive increases in required reserves between July 2006 and June 2008,  is ''to help solve important problems in our economy for its continued stable and fast development.''' 

The move comes in the wake of an unprecedented crisis in the global financial markets after Lehman Brothers Holdings Inc filed for bankruptcy and Merrill Lynch & Co agreed to be sold to Bank of America.

The latest developments add credence to the view that the credit crisis is deepening and threatening the global economy.

With the slowest inflation in 14 months, Chinese monetary authorities have now enough room for manoeuvre to cut borrowing costs and boost employment in the world's fourth-largest economy.

China's inflation rate dipped to 4.9 per cent in August even as export growth and industrial growth slowed, according to data released last week.

China's economy expanded by 10.1 per cent in the April-June 2008 from a year earlier, the fourth straight quarter of slow growth.


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China cuts lending rates, reserve ratio for banks as global financial markets sink