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The people’s Bank of China on 20 August dropped the new base lending rate from 4.31 per cent to 4.25 per cent, reports the Agency “Xinhua”. It happened for the first time after starting the reform of interest rates.
The reform, announced on 17 August, aimed at reducing the cost of borrowing for Chinese companies and support enterprises affected by low demand in the domestic market and long trade war with the United States. The representative of the Central Bank of China has said that the regulator will observe the impact on the economy revision to monetary policy. He stressed that the people’s Bank has the opportunity to continue to lower the rate, writes CNN.
Meanwhile, analysts argue that the current rate cut was probably a prearranged signal that China is ready for more ambitious steps. In fact, the reduction in rates only a few basis points might encourage banks only to a slight decrease in lending rates. Thus the effect of the current decline in economic activity in China will be small, said a senior economist at Capital Economics Julian Evans-Pritchard.
On Tuesday, the Chinese stock indexes reacted to the lower rates, after rising on Monday. The indices of the Shanghai stock exchange SSE Composite index and Dow Jones Shanghai lost 0.11 percent and dropped to 2 880 points and 415,78 points respectively. The index of the Shenzhen stock exchange showed a slight decline of less than one hundredth of a percentage point. The most important stock market index of Hong Kong stock exchange Hang Seng lost 0.23 percent. The China A50 index rose by 0.02 per cent, to 13 452,37 points, while the Nikkei gained 0.55 percent, an increase of up to 20 677,22 points.
China’s Central Bank on Saturday launched a reform of the key interest rates after statistics pointed to stronger-than-expected slowdown of the economy in July. The regulator has replaced the existing annual base lending rate of the Central Bank on LPR that it will now be attached to all new loans. LPR is the rate that commercial banks charge their best customers and which should better reflect the market demand for funds.
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