China slashes interest rates

China has taken further action to stimulate its economy, with the central bank cutting its one-year lending rate by 108 basis points to 5.58% and the deposit rate by the same amount to 2.52%.

The People's Bank of China also lowered the reserve requirement for larger banks by 100bp to 16%, and the requirement for smaller banks to 14%, a fall of 200bp.

The central bank has now cut lending rates four times since September 15, when the one-year lending rate stood at 7.47%, to counteract the global financial crisis. On November 9, the Chinese state also unveiled a 4 trillion yuan ($586 billion) plan to boost the economy, focusing on housing and infrastructure.

But today's news came shortly after the Chinese Bank Regulatory Commission reportedly urged Chinese banks to raise their regulatory capital levels from 8% to 10% by the end of the year, pointing out the dilemma that governments face between strengthening the banking system and stimulating the wider economy.

Both came the day after the World Bank forecasted China's GDP will contract to 7.5% in 2009 from 9.4% in 2008. In turn, China's export growth is expected to slow to around 3.5% next year, compared with 11% in 2008.

The Shanghai Stock Exchange 180 A-share index index hit a 52-week low of 3600 on October 10, compared with 12,884.1 on January 14 - a decline of 72.1%. The index was up 0.42% today, closing at 4111.90.

See also: BoE announces 1.5% rate cut
Safe as houses?