BEIJING, Oct. 8 (Xinhua) -- China's central bank on
Wednesday announced cuts in both the interest rate and reserve-requirement ratio
in the latest effort to boost the domestic economy amid worries over the
deepening global financial crisis.
The deposit and lending rates would be lowered by
0.27 percentage points from Thursday and the reserve-requirement ratio would be
down by 0.5 percentage points from Oct. 15, the People's Bank of China (PBOC)
said.
"This was mainly out of concerns over an economic
slowdown," said Ba Shusong, deputy chief of the Finance Research Institute under
the Development Research Center of the State Council.
"The rate cut was expected as the world was faced
with a cycle of interest rate cuts," he told Xinhua.
OUT OF SLOWDOWN CONCERNS
The loosening in monetary policy, the second such
move in less than a month, highlighted the government's rising concern over the
slowing economy and slumping capital market.
The PBOC cut the benchmark one-year lending rate by
0.27 percentage points on Sept. 16, the first rate cut in six years. It also
lowered the reserve requirement at medium- and small-sized lenders by 1
percentage point as of Sept. 25.
Tang Min, China Development Research Foundation
deputy secretary, echoed Ba's viewpoint.
Tang said the government made the move mainly out of
concerns over domestic problems. "The deepening U.S.-originated credit crisis
has impacted the psychology of Chinese and also the real economy," he told
Xinhua.
Investors, gripped by lingering fears of global
economic downturn, dumped equities to drive the stock market down 66 percent
from its peak last October.
China's gross domestic product (GDP) expanded 10.1
percent in the second quarter of the year, marking a deceleration for four
consecutive quarters.
Its exports, a major driver behind the economy,
reported slowing growth this year as the credit crisis reduced overseas demand
for its goods. This has led to the closures of tens of thousands of local
exporters and also job losses.
Local businesses bore the brunt of higher borrowing
costs and were even finding it difficult to get credit after last year's
tightening measures aimed at curbing inflation and averting economic
overheating.
The easing in inflation has given room for the
authorities to loosen monetary policy. The consumer price index rose 4.9 percent
in August, off from the 12-year-high of 8.7 percent in February.
"Inflation is no longer a threat with the declining
commodities prices," Tang said.
The monetary policy has been starting to loosen and
the trend would not change in the short term, said Zhuang Jian, an Asian
Development Bank (ADB) economist. "The whole world doesn't have strong
confidence in the economic outlook."
TAX CUT TO BOOST DEMAND
In another move to boost domestic demand, the State
Council, China's Cabinet, said it would scrap the 5 percent individual income
tax on savings interest earnings starting on Thursday.
China began levying a 20 percent individual income
tax on interest earnings in 1999 to narrow the income gap and encourage
consumption and investment. The tax rate was slashed to 5 percent on Aug. 15,
2007.
The income tax cut was a must as it would help
alleviate the erosion on personal income by high prices, especially given the
cut in the deposit rate, Li Yang, head of the Finance Research Institute under
the Chinese Academy of Social Sciences.
The tax cut, together with lower borrowing costs,
would boost domestic demand, an increasingly more important driver of economy in
the global credit crisis, Zuo Xiaolei, China Galaxy Securities chief economist,
said.
GLOBAL COORDINATED RESPONSE
The move was also a timely response to the rate cuts
by other major central banks and part of a coordinated effort to stem the global
crisis, Tang said.
Six other major central banks, including the U.S.
Federal Reserve, slashed interest rates on the same day to cope with the current
financial crisis.
The U.S. Federal Reserve lowered its target for the
federal funds rate by 0.5 percentage points to 1.5 percent. The Bank of England
cut its rate by half a point to 4.5 percent and the European Central Bank cut by
the same margin to 3.75 percent.
Central banks of Canada, Sweden and Switzerland took
similar actions. The Bank of Japan said it strongly supported these policy
actions.
Australia's central bank on Tuesday slashed the
interest rate by 1 percentage point, the largest cut since 1992.
China balances growth and
inflation
BEIJING, Oct.2 (Xinhua) -- Seeing fully loaded trucks
drive steadily away from the warehouse, Cheng Yongchang uttered a long sigh of
relief. Despite dripping with sweat from the hot weather, the general manager of
a South China toy producer would frequently feel waves of chills from a "winter
of foreign trade."
Small- and medium-sized enterprises (SMEs) in South
China's Pearl River Delta, the world's workshop, are facing a critical period of
trying to survive the current global economic slowdown. Full story
China's central bank reduces credit
interest rate, reserve requirement ratio
BEIJING, Sept. 15 (Xinhua) -- China's central bank said on
Monday it would reduce the benchmark loan interest rate and the reserve
requirement ratio for commercial banks to ensure a steady and rapid economic
growth.
The benchmark interest rate for one year yuan denominated
loans will be adjusted down 0.27 percentage points from Tuesday, its first
downward movement since October 2004. Full story
