<China> Cuts interest rates.
Hi Lee:
This bit of news just crossed the wires,not bad eh?
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China Cuts Bank Loan, Deposit Rates Again
7.58 a.m. ET (1258 GMT) December 6, 1998
BEIJING — China Sunday announced its third interest cut in 14 months to try to boost the economy and achieve this year's growth target of eight percent.
The People's Bank of China, the central bank, will reduce bank lending and deposit rates of financial institutions by an average of 0.5 percentage points effective Monday, the official Xinhua news agency said.
Xinhua said the reduction was made possible by interest rate cuts in Western countries and would ease the debt repayment of state-owned enterprises by 23 billion yuan ($2.77 billion) a year.
The reduction would "play an important role in appropriately increasing money supply next year, slashing costs of industrial and commercial enterprises, increasing credit to boost consumption, expanding domestic demand and exports, and promoting the continued, rapid and healthy development of the economy,'' Xinhua said.
The new benchmark one-year savings deposit rate is 3.78 percent, while the 6-12 month lending rate is 6.39 percent.
The central bank will reduce the amount of interest it pays on reserves of financial institutions to 3.24 percent from 3.51 percent, Xinhua said.
It will also cut the average interest rate on loans it extends to commercial banks to 5.06 percent from 5.61 percent, Xinhua said.
The cuts were designed to boost lending by commercial banks, said Zheng Haihang, an economics professor at Capital University of Economics and Foreign Trade.
It would be the sixth rate cut since April 1996, Xinhua said.
Chinese banks have cut rates on U.S. dollar deposits twice since September. Economists have said the cuts in U.S. dollar rates have given local banks room to reduce interest on deposits in yuan, China's currency.
Friday Hong Kong banks announced a cut in the prime lending rate by 0.25 percentage points to 9.25 percent effective Monday. The move follows a similar cut on November 23.
China has launched a big fiscal stimulus package to try to raise growth, pouring money into infrastructure investment projects, such as bridges and roads.
Key data show that the spending is helping to push growth closer to the 8.0 percent target.
China has been struggling with below-target economic growth, and many economists had publicly called for further interest rate moves to ensure gross domestic product expansion at the targeted level.
The economy expanded 7.2 percent year-on-year in the first nine months of this year despite the Asian financial crisis.
The economists have argued that with benchmark retail price inflation in negative territory since last October, real interest rates are extremely high and throttling growth.
"The reason for the cut is clear -- real interest rates are still very high in China,'' said a foreign banker in Shanghai.
"Chinese officials are also afraid of a recession,'' the banker, who asked not to be identified, said.
The banker described the cut in lending and deposit rates as "big'' but still within expectations.
Zheng said the cuts were designed to boost the economy and create jobs for millions of workers laid off from ailing state enterprises.
"An interest rate cut could help stimulate a slowing economy and boost output at factories,'' he added.
High interest rates are adding to the burden of hugely indebted state enterprises. Many of these companies are struggling to repay loans from the nation's state-run commercial
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