China gives more booster shots to slowing economy

China gives more booster shots to slowing economy
Highlights

China gives more booster shots to slowing economy. Giving more booster shots to prop up the slowing economy, China’s apex bank on Tuesday slashed benchmark interests by 25 bps and cash reserve ratio (CRR) by 50 bps, the twin measures that will reduce cost of borrowings and pump more liquid into the financial system.

Dragon moves

Cuts interest rates by 25 bps on Tuesday, two weeks after Yuan devaluation

People’s Bank of China has brought down the benchmark interest rate by 0.25 per cent or 25 bps to 4.6 per cent from 4.85 per cent. It also slashed CRR to 18 per cent from 18.5 per cent earlier. The move will infuse additional liquid of 678 billion yuan (about $105.7 billion) into the Chinese financial system

Hyderabad: Giving more booster shots to prop up the slowing economy, China’s apex bank on Tuesday slashed benchmark interests by 25 bps and cash reserve ratio (CRR) by 50 bps, the twin measures that will reduce cost of borrowings and pump more liquid into the financial system.

The latest move from the world’s second largest economy comes a day after global markets, including those in India and China, witnessed bloodbath amid rising concerns about the China’s economy. The bloodbath also continued on Tuesday in China and the country’s main stock market fell 7.6 per cent, taking the total erosion in stock market wealth to $1 trillion in the past four days.

On Tuesday, People’s Bank of China, the communist country’s central bank, brought down the benchmark interest rate by 0.25 per cent or 25 bps to 4.6 per cent from 4.85 per cent. It also slashed CRR, the amount the banks have to keep in reserve, to 18 per cent from 18.5 per cent earlier. The move will infuse additional liquid of 678 billion yaun (about $105.7 billion) into the Chinese financial system.

These stimulus steps also assume significance in the wake of unexpected devaluation of Yuan, the Chinese currency, nearly two weeks ago to boost sagging exports from the communist country. However, the devaluation sent global markets sent into a tailspin.

In a statement posted on its website, the central bank said the interest rate cuts would lead to reduction in borrowing costs for Chinese companies while slash in the reserve requirements were aimed at maintaining ample liquidity in China's financial system.

"Currently, there is still downward pressure on China's economic growth. There is also relatively big volatility in global financial markets, which require more flexible usage of monetary policy tools,” the central bank said in a separate release. Analysts believe the rate cut move by the central bank is aimed at strengthening economic fundamentals than underpinning stocks.

"Although this has some elements of giving comfort to the market, this is more about giving a real boost to the real economy so the government can continue to have its 7 per cent growth rate fulfilled," said Liu Li-Gang, China economist at ANZ Bank in Hong Kong.

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