BEIJING (AP) – China cut its key interest rate for the second time in less than a month Wednesday as the United States, Canada and Europe slashed their rates in a global effort to revive investor confidence shaken by a credit crisis.
China cut the rate on a one-year loan by 0.27 percentage points to 6.93 percent, adding to official efforts to revive slowing economic growth and help struggling exporters.
The cut is meant to “boost (the) domestic economy amid worries over (the) global financial crisis,” the official Xinhua News Agency said.
Beijing also will increase the pool of money available for lending by reducing the amount that Chinese banks must hold in reserve, the central bank said.
The amount of money that banks must hold in reserve will fall by 0.5 percentage points to 16 percent, effective Oct. 15, the central bank said.
The cut came as the U.S. Federal Reserve, European Central Bank and four other central banks cut interest rates to shore up investor confidence. The Chinese central bank’s one-sentence statement did not say whether its move was part of the coordinated action, and Beijing did not join in a joint statement by the six banks.
China has been largely unaffected by the credit crisis that crippled Western banks and roiled global markets, and is more concerned about a longer-term downturn in economic growth. Economists have cut growth forecasts for China this year to as low as 9 percent, down from last year’s 11.9 percent. That would be the highest rate for any major country, but communist leaders want to keep growth robust to reduce poverty and avoid job losses, which could fuel political tensions.
“China’s economic challenges appear to be mounting, necessitating further monetary easing as well as more aggressive fiscal spending,” said Jing Ulrich, chairwoman of China equities for JP Morgan Chase & Co., in a report to clients.
China faces slowing export growth, a cooling real estate market and weaker consumer spending, Ulrich noted.
“We expect China’s government to continue loosening monetary policy and draw on its fiscal resources to bolster investments in infrastructure,” Ulrich said. She said other steps could include reducing land taxes, easing curbs on mortgage lending and raising rebates of value-added taxes to exporters.
China’s earlier rate cut on Sept. 15 was its first in more than six years.
Chinese stock markets closed before the rate cut was announced. But in a sign of investor pessimism, the country’s main stock index fell 3.04 percent on Wednesday despite reports in government newspapers that a rate cut was imminent.
In a separate announcement, the Cabinet said Wednesday it was suspending a 5 percent tax on interest on bank deposits.
Beijing had steadily boosted rates and the reserve requirement over the past three years to cool pressure for prices to rise amid an investment boom. But the government shifted this year to also trying to keep the economy robust as export growth weakened.
China’s changes in interest rates and reserve levels usually are much smaller than those of other major economies. Economists say they have little direct effect on credit and are meant as signals to banks to curb or loosen lending.
A Chinese foreign ministry spokesman said Tuesday that Beijing was contributing to global finance by keeping its growth fast and stable.
On the ’Net:
Chinese central bank: www.pbc.gov.cn
Chinese Cabinet: www.gov.cn
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