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China cuts interest rates, reserve requirement ratio

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

China, following other economies, cut the benchmark deposit and lending rates by 0.27 percentage point yesterday to anchor its economy amid a worsening global financial crisis.

A woman walks in front of the headquarters of China's central bank, the People's Bank of China, in Beijing October 8, 2008. The central bank on Wednesday announced cuts in both interest rate and reserve requirement ratio in an effort to boost domestic economy amid worries over global financial crisis. [Agencies]

The reserve requirement ratio, or proportion of money commercial banks must set aside in reserve, will also be slashed by half a percentage point from Oct 15, the People's Bank of China said yesterday on its website.

The move will help prevent economic growth from declining as the global financial market turmoil is believed to further cut into world growth, which in turn will cut demand for Chinese exports, analysts said.

The interest rate cut will take effect from today, when the cost of one-year bank loans will fall to 6.93 percent from 7.20 percent, while the benchmark one-year deposit rate falls to 3.87 percent from 4.14 percent.

The reserve requirement ratio would be 17 percent for big banks and 16 percent for others.

The State Council, China's Cabinet, also said it would scrap the 5 percent individual income tax on interest on savings starting today to boost domestic demand.

China began levying a 20 percent individual income tax on interest earnings in 1999 to encourage consumption and investment. The rate was slashed to 5 percent in August last year.

"It is appropriate for the authorities to lower the interest rates and reserve requirement under the current circumstances," said Dong Yuping, economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

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