Loosening of Chinese Monetary Policy Coincides with More Wall Street Troubles

Xinhua reports on changes in China’s monetary policy announced over the weekend, coinciding with news of bankruptcy filings by Lehman Brothers and the sale of Merrill Lynch, both New York based investment banks:

China’s central bank said on Monday it would reduce the benchmark loan interest rate and the reserve requirement ratio for commercial banks to ensure a steady and rapid economic growth.

The benchmark interest rate for one year yuan denominated loans will be adjusted down 0.27 percentage points from Tuesday, its first downward movement since October 2004.

In addition, the ratio of deposit lenders are required to set aside will be down 1 percentage point from Sept. 25, the People’s Bank of China said.

However, the country’s major lenders will be exempt from the reserve requirement ratio adjustment. They include the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications and the Postal Savings Bank of China.

The New York Times notes that the move is welcomed by US financiers:

Western economists welcomed Monday’s moves toward lower interest rates and less stringent limits on lending.

“We see these adjustments as a positive step given the unprecedented uncertainties in the international financial markets and rising downside risks in the domestic economy, in particular the real estate sector,” Goldman Sachs said in a research note.


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