China cuts interest rates again

The Bank of China has announced that they are reducing the benchmark interest rates and saving interest rates which have fallen to 5.31 percent and 2.25 percent respectively.

As well as committing to a rate cut, the reserve needed for commercial banks was cut by half of a percentage point, which means that banks will now have more money available to lend.

The combination of reduced interest rate and reserve requirement ratio will help to stabilise domestic demand as well as for the real economy to invest and develop in order to overcome the downturn.

It is hoped that the lower returns from savings will encourage people to spend rather than save and the reduction in borrowing costs will hopefully bring back the age of mass consumption through the availability of cheap credit.

Chinese policymakers are doing all that they can in order to reduce the effect of the downturn and the marked effect in exports which fell for the first time in seven years last month and represented by a 2.2 percent fall year-on-year.

With its fifth interest rate cut in a row within three months, as well as the four trillion yuan ($584 billion) economic stimulus announced in November, the government is doing all in its power to overcome the reduction of industrial output which is down by 5.4 percent compared to last year.

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