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China cuts interest rates, markets rally
October 23, 2015, 6:28 pm

Chinese, and global, investors had reason to smile as Beijing's cut in interest rates helped start a global market rally [Xinhua]

Chinese, and global, investors had reason to smile as Beijing’s cut in interest rates helped start a global market rally [Xinhua]


Just a day after the dollar strengthened against the euro on news the European Central Bank would likely increase its stimulus scheme, Chinese officials announced they, too, would intervene by cutting interest rates.

Marking the sixth such cut in a little under a year, the Chinese Central Bank dropped the main interest rate by 0.25 to 4.3 per cent.

The move helped prop emerging market currencies with the Brazilian real leading the pack on Friday.

The Russian ruble was also up as emerging markets’ stocks continued their four-week rise partially due to end to speculation the US Federal Reserve would raise interest rates before the end of the year, and largely on and end to fears of a “Chinese meltdown”.

On Thursday, the ECB kept interest rates at 0.05 per cent and maintained current deposit rates to below zero at -0.2 per cent.

In China, the one-year deposit rate will fall to 1.5% from 1.75%.

China’s move Friday comes after three weeks of strong stock performances in the benchmark Shanghai Composite (SHCOMP) and Hang Seng (HSI) indices.

Speculation that China would alter monetary policy to help its markets partially helped the SHCOMP jump nearly 10 per cent in the past four weeks.

On Friday, it closed up 1.3 per cent. The HSI closed up 1.34 per cent.

Since China devalued its yuan over the summer sparking a global selloff over fears its juggernaut economic engine was finally slowing down, a perfect storm of market forces have come to play to reverse those trends.

Crucially, lackluster economic data and fears of low inflation prompted the Fed to pull back from a decision to raise interest rates – at least until the end of the year.

Meanwhile, the Chinese government has moved with regulations and monetary easing mechanisms designed to keep its markets from free fall.

The measures appear to have worked even though China’s growth for the three months ending September dropped to 6.9 per cent.

Add to all of this Thursday’s statements from ECB’s chief Mario Draghi, and markets couldn’t but go up.

On Friday, global stocks continued the week’s rally.

The BRICS Post with inputs from Agencies