Li Yanping and Nipa Piboontanasawat
Wednesday, Nov 26, 2008
China slashed its key lending rate by the most in 11 years, extending efforts to prevent an economic slump less than three weeks after unveiling a 4 trillion yuan ($586 billion) stimulus plan.
The key one-year lending rate will drop 108 basis points to 5.58 percent, the People’s Bank of China said on its Web site today. The deposit rate will fall by the same amount to 2.52 percent. The changes are effective tomorrow.
China, the biggest contributor to global growth, will expand at the slowest pace in almost two decades next year, the World Bank forecast yesterday. Manufacturing contracted by the most on record in October as recessions in the U.S., Japan and Europe reduced demand for exports and property prices fell at home.
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“It underlines the harshness of the economic slowdown,” said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7 billion. “The past six weeks has seen a rapid deterioration in the economic picture.”
The bank lowered the reserve requirement for the biggest banks to 16 percent from 17 percent, effective Dec. 5. The requirement for smaller banks will fall to 14 percent from 16 percent. The drop in the deposit rate was the biggest since 1999.
China’s stock market was closed when the announcement was made. Earlier the CSI 300 Index 0.5 percent, ending a four-day, 6.1 percent decline. The yuan closed at 6.8287 against the dollar from 6.8280 before the announcement.
The cuts are aimed “at ensuring sufficient liquidity in the banking system and to promote steady loan growth so that monetary policy can play an active role in supporting economic growth,” the bank said in a statement.