CHINA cut its main interest rate by 0.25 percentage points to 4.6% yesterday, for the fifth time since November, as it moved to try and prop up crisis-ridden western capitalism.
The People’s Bank of China also cut banks’ reserve requirement ratio by 0.5 percentage points. The moves take effect from Wednesday, the bank said. The People’s Bank said that the interest rate cut was to reduce ‘the social cost of financing to promote and support the sustainable and healthy developments of the real economy’.
It also acted to increase the flow of money in the economy by cutting the amount of cash banks must keep in reserve, effectively freeing them to lend more cash. The move to cut rates boosted European share prices, with the FTSE 100 in London shooting up by 3.3% after the China move.
In Germany, the Dax rose by 4.4% and in Paris, the Cac was up by 4.6%.
Other European markets, Lisbon, Madrid, Moscow and Milan were all sharply higher. However, earlier yesterday, Chinese stocks had plunged for a second day. The Shanghai Composite, China’s main stock exchange, fell 7.6%, after losing 8.5% on Monday in what state media have called China’s ‘Black Monday’.
Tokyo’s Nikkei index had a volatile day, yesterday, closing 4% lower, while the Shanghai index ended the day 245 points lower at 2,964.97. Monday saw the worst stock market crash since 2007 with Wall Street opening 1,000 points down in a state of panic, while £74bn was wiped off share prices on the London stock exchange.
The FTSE 100 index closed down 4.6% at 5,898.87 on Monday, with major markets in France and Germany down by 5.5% and 4.96% respectively. America’s Dow Jones Industrial Average slumped by 1,000 points before recovering to a 531-point dive to 16,460, its lowest close since October last year.
The Dow is in a technical ‘correction’, where share prices have fallen at least 10% from their most recent peaks. Also on Monday, the Australian share market saw as much as $60 billion wiped off share prices.
The Athens Stock Exchange lost 10.5% of its price on Monday as the China crisis hit the bankrupt country engulfed in political crisis. Greek banks’ shares dropped by 22.7%. Since the start of the year the Athens Exchange has lost over 31%.