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Thu July 5, 2012
Jittery Central Bankers Opt For Lower Rates In Europe, China
Central banks in Europe and China have lowered interest rates in hopes of propping up the shaky global economy.
In Europe, where the weaker EU economies seem to be balancing precariously on the precipice of default, the European Central Bank announced it would reduce its benchmark interest rates to 0.75 percent from 1 percent to spur borrowing and stimulate the euro zone economies.
Meanwhile, China is faced with its own challenges. Beijing's policymakers fear a hard landing as export markets in Europe and America falter amid continued economic malaise. The Chinese property market also looks like it could be facing a U.S.-style bubble.
[China's] central bank will reduce the one-year benchmark savings rate by 25 basis points, to 3.00 percent, to take effect July 6, according to an announcement on the PBOC website. And it will cut the one-year lending rate by 31 basis points, bringing it to 6.00 percent. The move follows an earlier interest rate cut on June 7, the first since 2008, and three reductions in bank reserve requirements, since last November.
Still, China's central bank signaled that policy makers will persevere in an ongoing effort to bring down property prices. "All financial institutions must continue to strictly implement a differentiated housing credit policy to continue curbing property buying for speculation and investment purposes," the central bank said in its interest rate statement.
We first reported on the fears of a "hiccup" in China back in December, when we noted that a slowing Chinese economy, even one that was simply paring back from double-digit GDP growth, wasn't a good thing:
In an interconnected global economy, what's bad for China is likely to be bad for everyone else.
In recent years, China has emerged as the biggest player in commodities. It consumes half of the world's cement, iron ore and coal and a significant share of a long list of other raw materials. As a result, commodities producers such as Australia, Brazil and Canada as well as the oil-exporting nations of Africa are likely to feel the biggest and most immediate pinch, says Alistair Thornton, a Beijing-based China analyst for IHS Global Insight.
"Although China doesn't buy much directly from the EU or the U.S., the indirect impact for a slowing China is fairly significant," Thornton said. "Australia, for example, buys quite a lot from the EU and U.S. So, there's a significant indirect link."