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China central bank cuts interest rate, reserve requirement to stimulate economy (10/08/08)

BEIJING, Oct. 8 (Xinhua) -- China's central bank on Wednesday announced cuts in both the interest rate and reserve-requirement ratio in the latest effort to boost the domestic economy amid worries over the deepening global financial crisis.

The deposit and lending rates would be lowered by 0.27 percentage points from Thursday and the reserve-requirement ratio would be down by 0.5 percentage points from Oct. 15, the People's Bank of China (PBOC) said.

The loosening in monetary policy, the second such move in less than a month, highlighted the government's rising concern over the slowing economy and slumping capital market.

The PBOC cut the benchmark one year lending rate by 0.27 percentage points on Sept. 16, the first rate cut in six years. It also lowered the reserve requirement at medium- and small-sized lenders by 1 percentage point as of Sept. 25.

Tang Min, China Development Research Foundation deputy secretary, said the government made the move mainly out of concerns over domestic problems.

"The deepening U.S.-originated credit crisis has impacted the psychology of Chinese and also the real economy," Tang told Xinhua.

The move was also a timely response to the rate cuts by other central banks and part of a coordinated effort to stem the global crisis, he said.

The State Council, China's Cabinet, said it would scrap the 5 percent individual income tax on savings interest earnings starting on Thursday to boost domestic demand.

China began levying a 20 percent individual income tax on interest earnings in 1999 to narrow the income gap and encourage consumption and investment. The tax rate was slashed to 5 percent on Aug. 15, 2007.

 


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