China cuts interest rates, reserve requirement ratio

By Xin Zhiming (China Daily)
Updated: 2008-10-09 00:41

US Federal Reserve Chairman Ben Bernanke speaks to the National Association for Business Economics (NABE) about the current state of the economy in Washington, October 7, 2008. Bernanke said recent economic data and financial developments showed that the outlook for growth had worsened while the outlook for inflation to ease had improved. [Agencies]

If the international financial crisis worsens and leads to a drastic slowdown of the Chinese economy, Beijing may take further measures, he said.

As the US financial woes spread to other major economies, global stock markets have tumbled this week, with Japan's Nikkei average plunging 9.4 percent yesterday and the Dow Jones industrial average slumping for the fifth day on growing fears of a global recession.

China's domestic A-share market fell by more than 3 percent yesterday. Analysts said the latest cuts would help stabilize the stock market, which may have continued to slide without policy support.

In response to the growing crisis, the US Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent.

The central banks of Canada, Sweden and Switzerland also cut rates. The Bank of Japan said it strongly supported the actions.

"The recent intensification of the financial crisis has augmented the downside risks to growth," the Fed said in explaining the coordinated action.

"The financial market developments will affect global economic growth and China must take action to cope with the challenge of external impact," Dong said.
Interest rate cuts alone, however, may not be very effective in invigorating the national economy, said Wang Tao, head of the China economic research unit of UBS.

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