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China cuts interest rates after days of market turmoil

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China has cut its main interest rate to boost growth in its economy.

The People’s Bank of China cut its main interest rate by 0.25 percentage points to 4.6% after two days of stock market turmoil.

It is the fifth interest rate cut since November and will take effect on Wednesday.

The move has boosted European share prices further, with the FTSE 100 in London jumping 3.3% after the China move.

In Germany, the Dax was up by 4.4% and in Paris, the Cac was ahead by 4.6%.

On other European markets, Lisbon, Madrid, Moscow and Milan were all sharply higher.

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The People’s Bank said that the interest rate cut was to reduce “the social cost of financing to promote and support the sustainable and healthy developments of the real economy”.

It also acted to increase the flow of money in the economy by cutting the amount of cash banks must keep in reserve, effectively freeing them to lend more cash.

The central bank’s move was broadly welcomed by economists.

A research note from JP Morgan stated: “China’s decision to cut… will be regarded by many investors as overdue. The litmus test will come overnight, however, and the efficacy of the… cut in boosting the domestic stock market.”

Growth fears

The Chinese authorities have taken a number of steps to help stem stock market losses since the market began a series of heavy falls in June.

Earlier, China’s falling stock market had hit markets around the globe on Monday, and – although Asian markets were again hit overnight – European stocks had already opened in a more optimistic mood on Tuesday.

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