world growth

world growth

Monday, September 15, 2008

China cuts interest rate

http://news.bbc.co.uk/1/hi/business/7616551.stm

China's central bank has cut interest rates for the first time in six years amid growing turmoil in global financial markets.

The key lending rate will fall to 7.2% from 7.47% with effect from Tuesday, while the amount of cash most banks must keep in reserve was cut by 1%.

The surprise move comes as US bank Lehman Brothers files for creditor protection and world shares tumble.

With inflation cooling, China is keen to maintain stable economic growth.

"We all knew that there would be monetary policy relaxation in China, but we didn't expect the move would be so quick," said Gao Huiqing, an economist at the State Information Centre, a government think tank.

All but the biggest banks will be allowed to reduce the proportion of deposits held in reserve from 25 September - the first time the central bank has cut reserve requirements since November 1999.

Pro-growth stance

Recent figures have shown that Chinese economic growth has slowed this year as a result of constrained demand for its goods from overseas markets.

The economy grew at an annual rate of 10.1% in the three months to June, down from 10.6% in the previous quarter and below the 11.9% seen for the whole of 2007.

Rising food prices helped to crimp growth as did the increasing cost of credit with six increases in interest rates last year aimed at bringing spiralling inflation under control.

Grain and pork shortages had pushed consumer prices to 11-year highs earlier this year, but government measures have helped to bring this figure down to 4.9% in August - a 14-month low.

This enabled Beijing to cut interest rates to boost consumer spending and offset a decline in demand for exports as the global economy slows.

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