Desperate measures: China cuts rate to free up $200bn
Saibal Dasgupt
Beijing
TNN
10-Day Fall In Stocks Wipes Out $3Trillion
Responding desperately to a sliding stock market, China injected fresh funds into the economy by cutting interest rate and lowering the amount of funds banks are expected to hold as reserves. The banking measures are expected to free up over $200 billion, which will act as a booster shot for the market, sources said.
The main Shanghai Composite index fell 7.6% to 2,964.97 points on Tuesday immediately after suffering an 8.5% slide on Monday , and a 11.5% decline in the past week. Taken together, the 10day slide has wiped out at least $3 trillion in stock value hitting a good portion of China's 100 million investors, sources said. The government fought back a market crisis in July after the market tumbled 32%. It has been confronted by another challenge, forc ing Beijing to avoid a major crisis, which can hit the wider economy .
Political observers said there is a political dimension in Beijing's efforts to protect the market because it does not want to give the impression of economic instability ahead of the September 3 military parade, which will showcase China's military might. The parade will display hundreds of weapons, which have not been publicly shown in the past, officials said.
Slide in Chinese markets sent the world's markets, including those in India, in to a shock. Japan saw a market slide by 4% on Tuesday .Massive sales of shares seen in world markets were driven by fears that Chinese buyers, who are one of the biggest purchasers of commodities, will cut down on their buying hitting thousands of companies across the globe.Talking to TOI, Shawlin Chaw, senior analyst for Control Risks, said the market slide reflects a widespread dissatisfaction among investors. Though the government has taken several measures to support the market, a large section of investors is asking for more, she said.
The People's Bank of China (PBOC) esponded to the market plunge by cutting the one-year benchmark bank lending rate by 25 basis points to 4.6%.
