The People’s Bank of China has again chosen to cut its one-year benchmark interest rate by a quarter of a percentage point, in the hope that doing so might lend the country a hand in reaching its seven percent growth target for this year. This same policy has been employed by China’s central bank on repeated occasions this year, and the announcement marks the sixth time in only 12 months that the country has slashed its key interest rate.
Looking at the last three decades, China’s economy has grown at an average clip of 10 percent per year
News of the rate reduction hit little under a month after the IMF delivered its revised global outlook, in which it stated global growth this year would be at its lowest since the financial crisis hit, as well as 0.3 percent lower than 2014. The reduction is due primarily to a prolonged slowdown in emerging markets, and China’s changed rate feeds into widespread fears that the world’s number two economy is struggling to reach its targets.
Looking at the last three decades, China’s economy has grown at an average clip of 10 percent per year, yet the country has been forced to make do with much less recently as it makes the transition to a sustainable growth model.
The country’s new 4.35 percent benchmark interest rate received a mixed, although Asian stocks mostly rose in response. The Shanghai Composite Index closed up 0.5 percent on the same day, which bears well for the country’s fifth plenary session, beginning on the day of the announcement.
The question for the time being is not whether China’s investment-driven growth story can realise a more sustainable shape, but whether it can do so without too much of in the way of an impact on global economic growth.