China ratcheted up its effort to reinvigorate its economy yesterday by cutting a key policy rate and interest paid on bank deposits.
The move coincided with a downturn in world stocks, extending losses in Chinese markets that have declined this year while share prices soared in many other countries.
The People’s Bank of China said it cut the lending rate for one-year medium-term policy loans by 20 basis points to 2.3 percent. That is the biggest rate cut since China’s economy was slammed by the COVID-19 pandemic in 2020.
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The rate on seven-day loans was reduced to 1.7 percent.
Yesterday’s rate cut also helps relieve pressure in the bond market since the central bank also has cut collateral requirements for its medium-term lending facility, enabling lenders to sell bonds normally used as collateral.
Major state-run banks cut deposit rates to relieve pressure on their finances, reducing the rate paid on one-year fixed deposits by 10 basis points to 1.35 percent, Xinhua News Agency reported, citing official rates released yesterday by the country’s “Big Four” banks: Industrial and Commercial Bank of China (中國工商銀行), Agricultural Bank of China (中國農業銀行), Bank of China (中國銀行) and China Construction Bank (中國建設銀行).
The banks cut deposit rates three times last year and this was the first reduction for this year, it said.
Earlier this week, the central bank cut several of its other lending rates, sticking to a cautious approach to stimulating the economy.
Growth in the world’s second-largest economy slowed to 4.7 percent in the second quarter, down from 5.3 percent in the first quarter.
The flurry of rate cuts this week followed a major policy-setting meeting of the ruling Chinese Communist Party last week that laid out ambitious plans for reforms in many areas of the economy, but did not spell out any specific plans for stimulus driven by government spending.
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