Weaker growth: china lowers interest rate again

Weaker growth: china lowers interest rate again

For loans of one year, the interest rate was reduced by 0.31 points to 6.0 percent. For savings deposits, the interest rate is reduced by 0.25 points to 3.0 percent. "The global economic situation is not very optimistic," said economics professor liu yuanchun from the people’s university (renmin daxue) in peking to the german press agency dpa. "This is why a fundamental reorientation of chinese monetary policy is inevitable."The renewed increase in interest rates is a sign that monetary policy will continue to be eased.

At the beginning of june, both interest rates were lowered by 0.25 percentage points for the first time since the financial crisis following the lehmann bankruptcy in 2008. Last year, however, the central bank had rather raised its lending rates three times because of high inflation. Since july 2011 they have not been touched again.

The central bank also changed the interest rate band. Accordingly, commercial banks were allowed to lend at interest rates up to 30 percent lower than the rates set by the government. Previously, only a 20 percent discount was allowed.

In its communication, however, the central bank called for unchanged strict control of the overheated real estate market. Despite the easing of monetary policy, the rules for loans and different interest rates for real estate projects had to be strictly adhered to in order to curb speculation.

New interest rate cut comes on signs that china’s economy has lost steam. In the first quarter, the economy had already grown by only 8.1 percent – the slowest pace in almost three years. Growth is expected to decline further in the second quarter to well below 8 percent. This is the sixth quarter in a row that the growth has been reduced. The new economic data will be announced next week friday.

Due to the debt crisis in europe, china’s largest trading partner, demand for goods "made in china" is declining, so the economic situation in china has also deteriorated. Some bankers have reduced their growth forecasts for this year to well below eight percent.


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