MOSCOW, November 22 (Sputnik) – The world’s stock markets rose strongly on Friday after the People’s Bank of China and the European Central Bank gave notice that they will move to stimulate their respective economies.
“The problem of difficult financing, costly financing, remains glaring in the real economy,” the PBOC said in statement on Friday, published by Reuters. “To solve the problem of expensive financing for companies, especially small companies, is… meaningful for stabilizing economic growth, promoting employment and benefiting people's livelihoods.”
The PBOC announced it would cut interest rates, a change which takes effect from Saturday. It is has cut the one-year benchmark lending rate by 40 basis points to 5.6 percent, and lowered one-year benchmark deposit rates by 25 basis points to 2.75 percent. The PBOC also announced that commercial banks will be granted more leeway to engage in the independent pricing of deposits and lending.
Beijing’s interest rate cut is its first since 2012, and was made as the Chinese economy struggles with a slowdown in third quarter growth to 7.3% year-on-year, according to government figures. The Guardian reports unofficial estimates put the figure at 5%.
Marc Ostwald, a strategist at broker ADM ISI, told the Guardian that China’s rate cut could mark the beginning of rate cuts from other emerging nations in Asia: “One can certainly also expect a response from South Korea and others in south-east Asia and a rate cut from India’s central bank also seems likely.”
The announcement from China came on the same day ECB chief Mario Draghi gave a clear indication of the ECB’s readiness to expand its asset-purchasing program in order to increase inflation; this news also buoyed the market. At close on Friday the S&P 500 was up 0.52% to 2,063.50, and the Dow Jones rose to 17,810.06, up 0.51%. The FTSE 100 closed 1.08%, higher, to reach 6,750.76.
On Friday Draghi gave a speech to bankers in Frankfurt, stressing the importance of tackling inflation in the Eurozone. “If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.”
The comments raised hopes in financial markets that the ECB is preparing to buy sovereign bonds in order to stimulate inflation, a policy followed by central banks in the US and Japan but so far resisted in the Eurozone.
