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China's Central Bank "Doubles-Down" to boost economy

Editor: Li Kun 丨CCTV.com

10-29-2015 16:45 BJT

By Liu Heguang, Associate Researcher, Institute of Agricultural Economics and Development (IAED), Chinese Academy of Agricultural Sciences (CAAS).

The People's Bank of China, from August 26, 2015, has lowered RMB benchmark lending and deposit rates for financial institutions. The one-year benchmark lending rate will be cut by 25 basis points to 4.35 percent, while the one-year benchmark interest rate on deposits will fall by the same amount to 1.5 percent, and the RRR for financial institutions will drop by 50 basis points.

 

This news released a favorable signal for the new normal Chinese economy. With a dramatic change of economic conditions, the past high speed-growth rates of 10% will no longer continue.

Third quarter data shows that economic growth remains under downward pressure: the growth rate of 6.9% in the third quarter is lower than the anticipated 7%; PPI data has kept negative growth for 43 months and CPI once again fell under 2%, reaching 1.6% in September.

The economic depression at home and abroad has led to negative growth of imports for 11 months and exports for three months.  Meanwhile, financial services have become a driving engine for development.

Globally, insufficient consumer demand has curbed economic growth. The easy money policy is a good alternative to lift-up confidence and release downward pressure.

Global commodity prices have dramatically fallen in 2014. The International Monetary Fund (IMF) has four times downgraded the global growth forecast from 3.8% early this year to the present 3.3%.

The World Trade Organization also made the same adjustment on its world trade growth forecast to 2.8%. All countries are easing money policy to promote their economies.

Amidst a difficult time for the world economy, China has much space to ease monetary policy. Future consumption and economic growth rates could be great in China.

The large amount of foreign exchange reserves, the high rate of deposit reserves and the high cost of social financing provide opportunities for easing the money policy. The "Double-Down" policy is favorable for a stable economy, as well as leading the world economy forward.

During the six rounds of interest rate cuts and five benchmark lending rate cuts since November 2014, the Central Bank has already controlled the timing and size of monetary policy adjustments, stabilized people's forecasts and the downturn of economic growth.

The "Double-Down" would release liquidity in the banking system to enhance a previous policy effect and economic development. Dong Ximiao, executive president of Evergrowing Bank Research Academy, predicted that the "Double-Down" would release 700 billion RMB into the markets.

With the support of an easy money policy, the Chinese economy may likely recover at the end of 2015. The sustainable and stable monetary policy creates favorable monetary conditions, neither too tight nor too loose, for smooth economic growth and transformation and upgrading the economy.

The central bank also announced that the commercial banks and rural cooperative financial institutions and other deposit rates will not set up floating caps, which is an important symbol of the basic completion of the interest rate market.

The deposit interest rates liberalization can make financial resources flow to promising sectors and enterprises where capital is needed that would create favorable conditions for sustainable economic development.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

 

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