Global markets gain as China cuts rates, banks’ reserve ratio
26 Aug 2015
China's central bank on Tuesday lowered interest rates and reduced the amount that banks have to hold in reserves, for the second time in two months, in a bid to bolster demand in a slowing economy.
The People's Bank of China (PBOC) moved to calm markets with fresh bouts of expected fund flows after China's stock market continued to plunge, dragging global markets along in the process.
Global stocks, oil prices and safe-haven bond yields rose after China cut interest rates and banks' reserve requirements to kick-start its faltering economy.
Wall Street opened more than 2 per cent higher, recouping some of its losses from the previous day's selloff, its worst in four years.
The dollar also gained against most major currencies, rising 1 per cent against the yen as the stimulus boost to the world's second largest economy gave impetus for a near-term interest rate hike in the United States, a possibility that that has sent shockwaves around the globe.
The move came after Chinese stocks continued to tumble on Tuesday as well. The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 7.1 per cent on Tuesday, while the Shanghai Composite Index fell 7.6 per cent to close below the psychologically significant 3,000-point level.
Underscoring the panic gripping the retail investors who dominate China's stock markets, all index futures contracts fell by the maximum 10 per cent daily limit, pointing to expectations of even deeper losses.
The People's Bank of China said it was cutting the one-year benchmark bank lending rate by 25 basis points to 4.6 per cent, cutting one-year benchmark deposit rates by the same amount, and reducing reserve requirements (RRR) by 50 basis points to 18 per cent for most big banks.
Major Chinese stock indices nosedived more than 7 per cent on Tuesday, hitting their lowest levels since December, following a more than 8 per cent plunge on Monday.
The stock market slump resumed last week despite Beijing's efforts to arrest a 30 per cent crash earlier in the summer with hundreds of billions of dollars of state-backed share purchases.
China, one of the main engines of the world economy, is now growing at a much slower pace than the official 7 per cent target for 2015.
Though the PBOC move came after domestic markets had closed, stock markets in Europe jumped, and US stock futures were also given a lift.
