China Slashes Lending Rate

China lowered its key lending rate by the most in 11 years, extending efforts to prevent an economic slump less than three weeks after unveiling a 4 trillion yuan ($586 billion) stimulus plan., 11/26/2008 6:25:56 AM

The key one-year lending rate will drop 108 basis points to 5.58 percent, the People’s Bank of China said on its Web site today. The deposit rate will fall by the same amount to 2.52 percent. The changes are effective tomorrow.

China‘s economy, the biggest contributor to global growth, will expand at the slowest pace in almost two decades next year, the World Bank forecast yesterday. Manufacturing shrank by the most on record in October as recessions in the U.S., Japan and Europe cut demand for exports and property prices fell at home.

The bank lowered the reserve requirement for the biggest banks to 16 percent from 17 percent, effective Dec. 5. The requirement for smaller banks will fall to 14 percent from 16 percent. The central bank also reduced the interest rate that it pays on reserves deposited by commercial banks to encourage lending.

Two hours after the rate cut, China’s cabinet said it was studying extra measures to help struggling companies in the steel, auto, petrochemical and textile industries; to increase key commodity reserves; and to expand insurance for the jobless.

The government will also push ahead with fuel-price and tax reforms to help boost consumption, the cabinet said. A fuel-price cut would be the first in almost two years. The government regulates energy prices to contain inflation, which fell to a 17- month low in October.

China Slashes Lending Rate