Daily Management Review

Chinese Banks Cut Their Interest Rates After The Stock Market Takes Another Nosedive


Chinese Banks produce revised interest rates, bringing it further down as stock market tumble yet again.

The slump in Chinese stock market in combination with the “stuttering economy” of the nation has alarmed the analysts worldwide. Moreover, now the central-bank of China has cut further “interests rates” along with lowering reserves banks’ amounts, has been reinforcing the stock market’s progressive deterioration. The bank has stated its revised interest rates “for the second time in two months on Tuesday”.
Following the Tuesday’s plunge of Chinese stock market which is speeding towards the predicted “downturn” period in the “second-largest economy” of the world and the “lack of policy action from Beijing” on the matter, the investors began to despair. The P.B.O.C informed that its lending rates would be revised to “4.6 percent” which would cut down its benchmark rates of “25 basis points” after a year. The same principle will also be applied in “benchmark deposit rates. In fact, the reserve requirements would also be brought down from “50 basis points to 18 percent”.
On Tuesday, major Chinese stock-indexes hit their lowest by “more than 7 percent”, which was preceded by a “more than 8 percent plunge” on the previous day. The downfall of the market was last witnessed in last December. However, Beijing tried its best in vain to “arrest a 30 percent crash” in the starting of this summer which involved “state-backed share purchases” worth hundreds of billion dollars. The government seemed to do anything about it, said Reuters, until Tuesday, when it issued responses aiming to shore-up “economic fundamentals rather than underpinning stocks”. A Chinese economist, Liu Li-Gang remarked:

"Although this has some elements of giving comfort to the market, this is more about giving a real boost to the real economy so the government can continue to have its 7 percent growth rate fulfilled”.
According to Liu, the reduction in RRR seemed amongst the “most significant” steps taken by P.B.O.C. which can in turn “ease concerns of a ‘hard landing’.” China, being one of the engines of world economy has topped the list of worries” for the analysts, even overtaking the Greece crisis as the investors “fret” about the slow economic growth of China being seven percent below the targeted amount for 2015. Panic seized the investors as “all index futures contracts” took a nosedive of “maximum 10 percent” below their daily limits, hinting at a further loss.
Nevertheless, following the P.B.O.C stand, even after the close of Chinese stock market, the counterpart of the U.S and Europe was a jump in their stock market rates. The turmoil of China’s stock market shook the global commodity and equity markets on Monday, while the policymakers still kept their calms looking at the “broader impact on the global economy”, whereby the P.M of Australia, Tony Abbott, the “biggest consumer” of Chinese commodity exports said:

"I think it's important that people don't hyperventilate about these types of things.

"It is not unusual to see stock market corrections. It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound."
However, experts point out that in the past “Chinese equity markets have shown little correlation with the real economy”; therefore there is no reason to panic as other countries still hold a strong economy. Although:

"China's recent economic data suggest that growth remains sluggish, but are not weak enough to justify fears of a hard landing."