China on Monday announced its fifth interest rate cut since mid-September and another reduction in its banking reserve requirement to free up more money in the effort to stimulate the country's slowing economic growth.

The benchmark one-year lending and deposit rates will each drop by 0.27 percentage points starting today, the People's Bank of China said yesterday on its Website.

The one-year lending rate will decrease to 5.31 percent, and the one-year deposit rate will fall to 2.25 percent.

The central bank will free up 300 billion yuan (US$43.8 billion) for possible lending by financial institutions by cutting the reserve ratio 0.5 percent starting Thursday.

Larger banks like the country's Big Five will enjoy a ratio of 15.5 percent while smaller players like city commercial banks will operate under a 13.5 percent reserve requirement.

The moves are aimed at further implementing the country's looser monetary policy, the central bank said.

China shifted the policy from "tight" to "moderately easy" in the second half of this year as the growth of China's economy began to slow amid the global financial crisis.

The central bank has chopped its one-year lending rates by 2.16 percentage points in the rate cuts since mid-September.

Also yesterday, the central bank reduced the rate for the public housing fund, which helps families buy homes at a discounted rate over commercial banks, by 0.18 percentage points.

The market had been expecting another loan interest rate cut, but some analysts thought it might be more.

"The cut was smaller than our forecast of a 54 basis-point rate cut before year end," Stephen Green, Standard Chartered Bank's chief economist, said yesterday.

As a result, Green's bank has moved an additional 27 basis-point cut into its forecast for the first quarter of next year, leading to an estimate of rate cuts totaling 81 basis points by the end of the next quarter. A basis point is one-hundredths of 1 percent.

"Monetary policy is now all about freeing up funds to be lent into government-backed investment projects, as well as driving down borrowing costs for leveraged firms," Green said.

"The two work together because, while the government intends to spend more of its fiscal resources in 2009, it is relying on a huge multiplier effect to do one-half of the work. And it is the banks which will be expected to provide that financing," he added.

Green said he expected a further 54 basis-point rate cut in the second quarter of next year.

(Shanghai Daily December 23, 2008)