China’s central bank unexpectedly slashed interest rates on Friday to re-energize the world’s No. 2 economy, joining a growing list of major economies that are trying to encourage growth in the face of a global slowdown.
China’s bank cut the rate on a one-year loan by commercial banks by 0.4 percentage points to 5.6 percent. The rate paid on a one-year savings was lowered by 0.25 point to 2.75 percent. It was the first rate cut since July 2012, and comes after the Cabinet called this week for steps to reduce financing costs for industry to make the economy more efficient.
The president of the European Central Bank said Friday he was ready to step up stimulus for the 18-country eurozone economy, where growth is meager and unemployment is soaring. And Japan’s government this week delayed a tax increase after the country slipped back into recession. Japan’s central bank late last month increased its purchases of government bonds and other assets to try to revive growth.
The slowdown in global growth is becoming an increasing concern for policymakers. Japan confirmed this week that it has fallen back into recession and will delay a tax increase to help consumer spending.
In Europe, it is not only weak growth but also the low inflation rate that is worrying the ECB. Low inflation or an outright drop in prices can weaken an economy further by encouraging delays in spending and investment. The economy of the 18-country eurozone grew by a scant 0.2 percent in the third quarter compared with the previous three months.
As indicators for the eurozone and global economy disappoint, ECB President Mario Draghi was firm in his message: “”We will do what we must to raise inflation and inflation expectations as fast as possible,” he said in a speech in Frankfurt.
Of major economies, only the U.S. is considering raising interest rates. The Federal Reserve only recently ended a massive bond-buying program that helped reduce market interest rates because the economy is strengthening.
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