China central bank cuts interest rates again

Property is the bright spot in an otherwise sombre Chinese economy. Price gains were recorded in 39 of 70 cities surveyed. But conditions remain weak in smaller cities, with a huge cache of unsold houses discouraging new investment and construction.
Property is the bright spot in an otherwise sombre Chinese economy. Price gains were recorded in 39 of 70 cities surveyed. But conditions remain weak in smaller cities, with a huge cache of unsold houses discouraging new investment and construction. PHOTO: BLOOMBERG

Banks’ reserve ratio also lowered in an attempt to stimulate a slowing economy

BEIJING • China’s central bank cut interest rates for the sixth time since November yesterday, and it again lowered the amount of cash that banks must hold as reserves, in another attempt to jumpstart a slowing economy.

China’s monetary policy easing is at its most aggressive since the 2008-2009 global financial crisis, underscoring concerns within Beijing about the health of the world’s second-largest economy.

The People’s Bank of China (PBOC) said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent, effective from today.

The rate cut was in line with the economic situation and would further lower social financing costs to support the real economy, the bank said, adding that inflation stayed on a lower level overall, leaving some room for a rate cut.

The reduction in the reserve requirement ratio (RRR) for banks, by 50 basis points to 17.5,was a pre-emptive move to support liquidity in the banking industry, the PBOC said.

The targeted RRR cut is aimed at better supporting the rural sector and small businesses.

Buoyed by China’s easing, European shares turned higher and the Chinese offshore yuan fell against the USdollar.

“The People’s Bank has delivered another jolt of stimulus,” analysts at Capital Economics said in a note to clients. But they added that they were “still waiting for clear evidence of an economic turnaround”.

“We are retaining our forecast that benchmark rates and the reserve requirement ratio will both be cut once more before the end of the year, with a further move in both early in 2016.”

Sobering economic data in the third quarter has demonstrated the daunting challenges faced by the country’s leaders, not least in attaining the 7 per cent growth target set by the government.

Data released on Monday showed that China’s economy grew 6.9 per cent between July and last month from a year earlier, dipping below 7 per cent for the first time since the global financial crisis.

Property was the rare bright spot in an otherwise sombre mood, with homeprices rising for a fifth consecutive month in September, suggesting a mild recovery in the housing market that will relieve some pressure on the struggling economy.

Month-on-month price gains were recorded in 39 of the 70 cities surveyed, up from 35 in August, data released by the National Statistics Bureau said yesterday.

The sector accounts for 15 per cent of gross domestic product. But conditions remain weak in smaller cities, and a huge overhang of unsold houses is discouraging new investment and construction.

Data on Monday showed that growth in China’s property investment in the first nine months of the year slowed to the lowest level since early 2009, while new construction in the same period continued to see a year-on-year drop.

Economists at ING said such a revival in new home starts could point the way for property to become an economic growth driver again next year, boosting demand for construction materials from cement to steel.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline 'China central bank cuts interest rates again'. Print Edition | Subscribe