The benchmark one-year lending rate was cut to 4.6% and the deposit rate was slashed to 1.75%.
Monday saw the UK’s blue-chip index shed £96bn in market value as it closed 4.7% down at 5,899, falling below the 6,000 mark for the first time in over two years. China’s rate cut will put RBI in a dilemma on policy rates. The markets cheered the announcements, with European and US equities bouncing back smartly. The central bank also emphasized that inflation remains low and the cut in reserve requirement ratios will alleviate the shortfall in liquidity caused by the foreign exchange market moves. “With an aim to channelize banking lending to support real economy, China’s policy actions create scope for synchronous rate cuts in the region, in a bid to stimulate growth in the nexus of emerging market economies”, said Rana Kapoor, MD & CEO, Yes Bank.
The Nikkei share average ended down 4 percent at 17,806.70 points, its lowest close since February 10.
In an interview with Al Jazeera, Steve Keen, head of the school of economics, politics and history at Kingston University in London, said he expects more volitility ahead.
The Chinese authorities have taken a number of steps to help stem stock market losses since the market began a series of heavy falls in June.
“This has been a crisis waiting to happen”.
In order to prime up the economy, PBOC also reduced reserve requirement by 300 bps for financial and auto leasing companies.
The rate cut, which will be effective on Wednesday, is the fifth by the Chinese central bank since November 2014.
“A spate of better economic news may help to allay concerns that global growth is not deteriorating”. Investors globally are anxious that firms and countries that rely on high demand from China – the world’s second-largest economy and the second-largest importer of both goods and commercial services – will be affected.
Cutting rates now just reinforces the notion that central bank policy is subordinate to the whims of the stock market.
Deposits with a maturity of less than one year maintain the former floating ceiling set by the PBOC since May.
“I think it’s important that people don’t hyperventilate about these type of things”, said Australian prime minister Tony Abbott, whose country is heavily exposed to China, the biggest consumer of its commodity exports.
While the western mainstream media meme is that “this is all China’s fault” – despite the fact that the real break happened after the FOMC Minutes last week – Xinhua reports that China central bank blames wide-spread expectations of a Fed rate hike in September for the global market rout… demanding The Fed “remain patient“.