China slashes interest rates

The Chinese economy, which is much publicised as being the greatest contributor to global economic growth, has received scrupulous attention to change and so the decision by the People’s Bank of China to reduce interest rates, has received rapturous applause.

The rate cut of 1.08 percent, to 5.58 percent, follows on from the decision to pump 4 trillion yuan (385 billion pounds) into the economy.

The central bank has cut interest rates three times between September and October, and the strong shift towards loosening monetary policy was expected, so further rate cuts were obviously forthcoming although the extent of the decision has shocked analysts.

As part of the move, the reserve requirement rate for the largest banks will fall by 1 percentage point and by 2 percent to 14.5 for smaller banks.

It is hoped that this will encourage interbank lending and bring down borrowing costs to ensure that there is enough liquidity in the banking system, in order to facilitate continued growth.

Annual consumer inflation has tripled through 2008 and even though there have been six rises in interest rates, as well as bank reserve rises, it has become clear that mainstream inflationary pressures have subsided and that protection of growth is of paramount importance both to the Chinese and the global economy.

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