SteelOrbis Shanghai
The People's Bank of China (central bank) has announced that it is cutting the benchmark interest rate and also the deposit reserve ratio of financial institutions in China, with the aim of ensuring ample liquidity in the domestic banking system and of promoting stable credit growth.
As of November 27, 2008, the one-year benchmark interest rate will decrease by 1.08 of a percentage point. As of December 5, the reserve requirement ratio will be lowered by one percentage point at the large banks and by two percentage points at the smaller and medium-sized banks. Meanwhile, a favorable reserve ratio will continue in effect for financial institutions in earthquake-hit regions and rural areas.
Economy experts think that, against the background of the global economic crisis, the Chinese government has made significant efforts in the issuing of economic stimulus measures aimed at overcoming the severe problems encountered by China's economy. Nevertheless, so far as it goes, this latest adjustment is good news to the steel industry and other capital-intensive industries. Currently, most mills have large quantities of material in stock, resulting in a shortage of funds. The cut in lending rates will reduce their borrowing costs, thereby providing a great help in alleviating tight capital supply. According to one insider from Baosteel, the producer will be able to save about 20 percent on its borrowing costs with this rate cut.