China smashes interest rates

In the midst of a crumbling economy, The People's Bank of China has slashed interest rates by more than one per cent - the largest rate cut in 11 years...

Whilst this latest cut is the fourth interest rate cut from the Chinese central bank in the last ten weeks, economic growth remains stalled and the economy slides close to a recession.

The cut, which Sees the People's Bank of China's main borrowing rate reduced by 1.08 per cent to 5.58 per cent, is the biggest one off cut since the Asian Financial Crisis in 1997.

It is the latest in a series of measures designed to spur private borrowing and support a multibillion-pound stimulus package to boost slowing economic growth.

The reserve requirements of Chinese banks were also cut by one per cent and two per cent for smaller banks, freeing up around £34 billion for lending.

The Chinese Government has also announced a £373 billion bailout to stimulate domestic growth by investing in infrastructure. However, only a fifth of the money is likely to come from central Government coffers, with the rest coming from a mix of private enterprise and local Government funds.

"We're seeing a Government that steps in, that is trying to do everything it can to keep growth at a decent rate, and has the financial means and the administrative capacity to make that happen," said Louis Kuijs, Head of the World Bank's China Economics Analysis.

The fall in borrowing costs could also help rejuvenate China's housing market which has slowed of late. Trading volumes in Shanghai's residential property market have already staged a recovery in the last two weeks following the Government's decision to introduce a stimulus plan last month. Statistics show that property sales in Shanghai last week rose 24.6 per cent.

Whilst the Chinese economy is still expected to grow by 7.5 per cent next year, which by some standards sounds like a lot; for China, it is a 19 year low.

The benchmark one-year lending and deposit rates will both be reduced today by 1.08 per cent to 5.58 per cent, with the benchmark one-year deposit rate cut by the same mount to 2.52 per cent, the People's Bank of China said in a statement.

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