China has abolished its official cap on interest rates for savers and announced a further easing in monetary policy as it seeks to address slowing growth in the world’s second-largest economy.
The end of the rate cap, announced by the central People’s Bank of China on Friday, will allow financial institutions to offer savers a market-based rate of return for their money, introducing true competition for capital in a still state-dominated economy.
The decision will bring significantly more competition to the financial sector, which in recent years has seen property and share prices boom, only to face heightened risks when the bubbles burst.
It comes days before the leaders of the ruling Communist party meet to set the direction for the economy in the next Five Year Plan, and as Beijing seeks a greater international role for the yuan, including joining the exclusive ranks of the International Monetary Fund’s special drawing rights reserve currency.
It was accompanied by a 0.25 percentage point cut in interest rates and a 0.50 percentage point drop in the reserve requirement ratio, the amount of cash banks must keep in reserve.
Stocks markets surged on news of the rate cut, which comes on the heals of hints from the European Central Bank that fresh stimulus measures could be expected after its December meeting.
‘It looks like the whole monetary easing is heading into another round,’ Christian Gattiker, head of research at Julius Baer Group Ltd in Zurich, told Bloomberg News.
‘China was very reluctant to move, but they have moved today and that’s taken as a proxy for assessing whether China is serious about supporting growth.’
China’s expanded monetary easing has fuelled hopes that it will be followed by similar moves from other key central banks, including Japan and the US, as policymakers try to boost slowing global growth.
AFP
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