China's rate cut fails to stop share slump

China's rate cut fails to stop share slump

Although China's central bank has cut its key lending rate it has not halted further stock market falls.

The new rate cut by the central bank of 0.25 percentage points meant its key lending rate now stands at 4.6%, however this has failed to calm the nerves of stock markets.

Continued falls

The Chinese mainland's benchmark, Shanghai Composite, dropped by another 1.27% to 2,927.29, meaning that it has decreased by around 16% in just one week.

The ongoing volatile situation seems to be resisting all efforts by the People's Bank of China to pour cold water on an increasingly worrying situation. The interest rate cut was the fifth made by the bank since November 2014.

With investor confidence continuing to be hit, both Asian and US markets has also suffered sharp falls in stock values. European markets are also being affected and were down by about 1.5% in early trading on Wednesday.

Cut effects

The thinking behind the rate cut is the same as the reasoning behind the UK's current ongoing historically low levels. Essentially, it means it is cheaper for banks to borrow money from the central bank and this trickles down to business and individual borrowing, putting more money in circulation and promoting growth.

However, many observers are worried about the true state of the second largest economy in the world.

With currency devaluation adding to the confusing picture, global markets such as commodities, foreign exchange, stocks and bonds are all being affected with an increasingly confused and potentially highly negative outcome.

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