China rate cut fails to stem US market losses
The free-falling Chinese stock market and growing fears about the health of the world's second-largest economy prompted the "panicking" Beijing authorities to slash interest rates and boost domestic bank lending yesterday.
After Chinese stocks had plummeted by another 7.6pc, following the 8.5pc rout on 'Black Monday', the People's Bank of China moved to staunch the bleeding by announcing a cut in the benchmark lending rate by 0.25 percentage points to 4.6pc. The central bank also reduced its "reserve ratio requirement" for large banks, which should enable them to lend more money.
News of Beijing's monetary relaxation gave an immediate fillip to European shares. In America, shares were up sharply too, but dramatically lost ground before markets closed, reflecting fragile investor confidence.
Wang Tao of the investment bank UBS predicted Beijing's latest monetary easing would "help shore up sentiment in markets". But other analysts argued the move was primarily designed to support the Chinese economy, rather than the country's stock market. "The change of tack may signal that policymakers have finally conceded that their efforts to determine prices are futile," said Mark Williams of Capital Economics.
Others suggested that the move indicated rising panic among the authorities in China about the state of the economy. "This is a big-bang move... Frankly [it] shows a bit of panic," said Andrew Polk of the Conference Board in Beijing.
The Chinese authorities are targeting GDP growth of "around 7pc" this year. In 2014 growth slowed to 7.4pc - the weakest since 1990 - and some analysts believe that the economy is performing worse than the official figures imply.
"China's economic growth is still facing downward pressure, and the task of stabilising growth... and preventing risks is still extremely arduous," the Beijing-based central bank said in a statement.
The authorities have enacted a range of measures in an attempt to prop up the stock market since the bubble burst in June, including ordering financial firms to buy up shares and commanding the state media to talk up the market.
But prices have nevertheless continued sliding. Now the focus has moved to measures designed to prop up the economy more broadly.