China cuts interest rates to spur growth

By Scott Mcdonald, The Associated Press

BEIJING - China cut key interest rates for the third time in six weeks Wednesday in a bid to spur economic growth amid fears of a global recession that would hit its vital exports.

China trimmed the rate on a one-year loan by 0.27 of a percentage point to 6.66 per cent, adding to official efforts to revive slowing economic growth and help struggling exporters.

The country's central bank also said in a statement that it had lowered the rate on one-year fixed deposits to 3.6 per cent from 3.87 per cent. Both cuts are effective Thursday.

The cuts come as the U.S. Federal Reserve and European central banks scramble to cut rates to shore up investor confidence.

On Wednesday, the Federal Reserve slashed a key interest rate by half a percentage point as it seeks to revive an economy hit by a long list of maladies stemming from the most severe financial crisis in decades.

The Bank of Canada has already cut rates three quarters of a point in recent weeks and may cut rates again in early December as the Canadian economy slows to a crawl.

China has been largely unaffected by the credit crisis that crippled Western banks and roiled global markets, and is more concerned about a longer-term downturn in economic growth.

Economists have cut growth forecasts for China this year to as low as nine per cent, down from last year's 11.9 per cent. That would be the highest rate for any major country, but communist leaders want to keep growth robust to reduce poverty and avoid job losses, which could fuel political tensions.

China also cut rates on Oct. 8 and on Sept. 15.

Chinese stock markets closed before the rate cut was announced. Chinese shares fell back Wednesday, as a brief-lived rally fizzled amid a resurgence of pessimism over the economic outlook. The benchmark Shanghai Composite Index shed 2.94 per cent to 1,719.81 points. It had gained 2.8 per cent on Tuesday, tracking a regional recovery.

China's changes in interest rates and reserve levels usually are much smaller than those of other major economies. Economists say they have little direct effect on credit and are meant as signals to banks to curb or loosen lending.