China has cut its interest rate by 0.25% following a second day of plunging stock values after the global sell-off triggered by its slow growth.
The slow growth China has been experiencing meant The People’s Bank of China has cut interest rates for the fifth time since November.
The volatility of the market was expected to negatively affect the European and US markets; however, the interest rate changes have boosted European share prices, with the FTSE 100 jumping 3.3%.
The People’s Bank has explained their actions stating that it was to reduce the impact of financing the economy on the people of China.
This all comes after Monday when the Shanghai Composite, China’s main stock exchange, fell by 7.6%, after losing 8.5% on what state media are calling Black Monday. The fall is the worst since 2007 and has caused sharp drops in US and European markets.
After decades of rapid growth, China is beginning to slow down and investors are worried that firms and countries that rely heavily on China will be affected. China is the world’s second largest economy and the second largest importer of both goods and commercial services.
Following considerable volatility, the Chinese government tried to maintain momentum in the economy by intervening in the stock market to support values. But concerns were raised again two weeks ago when the central bank devalued the yuan in an attempt to boost demand overseas for Chinese goods.
Carrie Gracie, the BBC China Editor has warned that “For a government whose legitimacy rests on economic competence, and which had hoped that a rising stock market would help ease the problems of a wider economic slowdown, this financial crisis still carries real political dangers.”
The government’s devaluation and subsequent global sell-off is driven by the fear that China’s growth is slowing, and this means less business for other countries’ markets. The results of this devaluation and the interest rate cuts will begin to appear over the next few days and weeks.