MercoPress. South Atlantic News Agency

China reacts to negative Nov: fifth rate cut in 3 months

China cut interest rates for a fifth time in three months on Monday in its latest efforts to rev up the economy. The one-year lending rate will drop by 0.27 percentage points to 5.31% and the deposit rate by the same amount to 2.25%, the People's Bank of China said on its Web site.

The central bank also reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage points. The reserve requirement will drop to 15.5 percent for big banks and to 13.5 percent for smaller ones effective Dec. 25 The decision follows China's first drop in exports in seven years during November (2.2%) when imports also plunged (17.9%) and manufacturing shrank by a record 5.4%, threatening to push the world's fourth-largest economy into its deepest slowdown in two decades. The World Bank forecasts the Chinese economy will expand by 7.5% in 2009 and Beijing is targeting an 8% expansion. However international banks are less optimistic. China cut interest rates by 1.08 percentage points last month, the biggest reduction in 11 years. China's slowdown threatens to trigger unrest as factories close and unemployment climbs in the world's most populous nation. The government has switched from battling inflation in the first half of the year to guarding against the risk that falling prices will contribute to the economy spiralling down. Inflation was the slowest in 22 months in November. The interest rate cut followed on reports that China's foreign exchange reserves, the world's largest stockpile, shrank in October to less than 1.89 trillion US dollars, their first monthly fall since December 2003. Reserves stood at 1.906 trillion USD at the end of September, the last date for which official figures have been reported, meaning they fell by at least 16 billion during October. Cai Qiusheng, an official with the State Administration of Foreign Exchange (SAFE), acknowledged in a speech on Saturday that the reserves had fallen from their level above 1.9 trillion USD, but gave no further details on the extent or timing of the fall. A moderate easing in the reserves' accumulation was what authorities had long been hoping for, Cai noted, according to a transcript of the remarks published on the web portal Sina.com. The reserves rose by 280.6 billion in the first half of 2008 to 1.809 trillion. For all of 2007, they rose by 461.9 billion, compared with an increase of 247.3 billion in 2006.