IN OTHER WORDS
The biggest interest rate cuts made by the People’s Bank of China in 11 years demonstrate the central government’s strong determination to curb a further slide of the economy in the context of the world’s financial crisis. The central bank made a decision last Wednesday to cut 108 basis points respectively on the benchmark one-year lending and deposit interest rate from the following day. It also said as of December 5, it would lower the reserve requirement ratio by 1 percentage point at large banks and 2 percentage points at small and medium-sized financial bodies.
The latest interest rate slash by the central bank and its bigger stride in reducing the reserve requirement ratio are symbolic of government efforts to encourage the country’s enormous reservoir of deposit, to flow to the fields of investment and consumption as the main means to lubricate the already slowed economy.
What kinds of effects the move will have on the country’s economy still remains unknown, given that the cuts do not inevitably mean commercial banks would extend credit to struggling enterprises. Any rush would put them under financial risks. Also, a steep cut on interest rates may plunge the country into fluidity excess if we cannot improve the efficiency in the use of the released funds. — China Daily