Tuesday, November 4, 2008

China adopts flexible monetary policy to boost economy, cope with crisis

November 01, 2008 / Xinhua

China's decision to cut interest rates on Thursday is part of its flexible monetary policy to cope with the world financial crisis and boost domestic economy, a central bank spokesman said on Friday.

Li Chao, spokesman of the People's Bank of China (PBOC) explained the government's cut in interest rates for the second time in one month.

On Wednesday, the PBOC announced to cut interest rates by 0.27 percentage points as of Oct. 30 to spur economic growth. The benchmark one-year deposit rate dropped to 3.60 percent from 3.87percent, while the benchmark one-year lending rate fall from 6.93 percent to 6.66 percent.

The previous cut was on Oct. 8, when the PBOC announced a lowering of deposit and lending rates by 0.27 percentage points and decided to cut the reserve-requirement ratio by 0.5 percentage points from Oct. 15.

Li said the move was in response to a spreading and worsening world financial crisis. "The severe crisis was beyond most people's expectations."

He said: "China's economy relies highly on external markets. It is very necessary for the country to adjust economic policy, including monetary policy, in a timely and flexible manner to reduce the negative impact to a minimum."

"Recently, China's exports have weakened as a result of weak world demand. Domestic export-oriented enterprises, especially those coastal based companies, face difficulties," he added.

The country's export value in the first three quarters was 1.07trillion dollars -- up 22.3 percent -- the growth rate was 4.8 percentage points lower, official figure showed.

"Meanwhile, the nation's inflation pressure has been eased," he said, adding the latest interest rate cut aims at maintaining the energy of China's economic growth.

China's gross domestic product (GDP) grew to 20.16 trillion yuan (2.96 trillion U.S. dollars) in the first three quarters of this year, up 9.9 percent from the same period of last year. The growth rate was 2.3 percentage points lower than the same period last year.

Consumer price index (CPI), the main gauge of inflation, rose 4.6 percent in September over the same period last year, off from the 12-year high of 8.7 percent in February.

When asked the reason why the government only reduced interest rates and left the reserve-requirement ratio unchanged in the latest move, Li said this is because liquidity of the country's bank is adequate.

Li said to cope with the international financial crisis and maintain sound and relatively fast national economic growth, the central bank has removed mandatory restriction on the commercial banks' loan plan.

He said that China has confidence that it can resist the world financial crisis, as the country has great potential in expanding its domestic demand, and the financial system is stable.

He called for cooperation between countries worldwide to cope with the crisis, and to carry out international financial system reform.