China cuts interest rates again to spur economic growth
China cut interest rates for a fifth time in nine months on Tuesday in a new effort to shore up slowing economic growth, and its top economic official tried to dispel fears its yuan might fall further in value.
US stocks rose on the news, but eventually ended the day with a loss of 205 pints on the Dow.
The benchmark rate for a one-year loan will be cut by 0.25 percentage points to 4.6 per cent, and the one-year rate for deposits will fall by a similar margin to 1.75 per cent, the central bank announced. It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5 percentage points.
The moves had been expected after exports, manufacturing and other economic indicators weakened by larger margins than expected.
Premier Li Keqiang, the country's top economic official, said there was no basis for further declines in the yuan,
also known as the renminbi, following its surprise August 11 devaluation.
Economists said the three per cent decline against the dollar was too small to help Chinese exporters. The central bank said the decline was a one-time event and part of changes meant to make the exchange rate more market-oriented, but it fuelled fears of a "currency war" if other governments reduced their own exchange rates to keep export prices low.
"There is no basis for continued devaluation of the renminbi exchange rate," Li said during a meeting with a visiting Kazakh official, according to state television. "It can remain stable at a reasonable and balanced level."
Li also tried to dispel anxiety about the cooling economy, saying growth was in a "reasonable range."
Beijing reported economic growth held steady at seven per cent in the latest quarter, but that was due to a stock market boom that pushed up the contribution from financial industries while other sectors weakened.
In a statement, the central bank cited "downward pressure" on the economy and said it wanted to lower financing costs for Chinese companies.
The bank also promised to pay close attention to liquidity, or the availability of credit, a possible attempt to ease concern that a recent rise in capital outflows from China might leave less money for lending.
Exports in July fell by an unexpectedly large margin of 8.3 per cent, while a manu-facturing survey found activity this month contracted at a faster rate than anticipated.