The People's Bank of China, the Chinese central bank, announced over the weekend that it would reduce interest rates for six main overseas currencies - the US dollar, the pound sterling, the euro, the Hong Kong dollar, the Canadian dollar and the Swiss franc - from today.

The one-year interest rate on US dollar deposits was reduced to a record low of 1.25 percent from the 2 percent set in October, making it the ninth time that China has cut interest rates on the US dollar since the beginning of this year.

The central bank's interest rate cuts today were a follow-up on the US Federal Reserve's move last Tuesday, when it reduced its federal funds rate, the interest that banks charge for overnight loans, from 2.5 percent to 2 percent, the lowest since May 1962. It was the 10th time that the Fed had cut its benchmark interest rate this year.

Local analysts said that the downward interest rate trend in other major economies was the main reason for the Chinese central bank's decision.

The European Central Bank and the Bank of England both cut interest rates by a half percentage point to 3.25 and 4.0 percent respectively, after the Fed's move.

"Most major economies in the world are loosening their monetary policies to alleviate the would-be negative influences that the US economic slowdown and the Fed's interest rates cuts may inflict on them," said a local analyst.

The Chinese central bank always cuts its interest rates on foreign currency-denominated bank deposits within 10 days of a similar Fed action, said Zheng Ruoping, a spokeswoman for the Bank of China's Shanghai branch.

Meanwhile, forex experts have advised local investors to be more cautious amid a global economic slowdown.

"Currently, the one-year interest rate on US dollar is even lower than that for the Chinese yuan, which stands at 2.25 percent," said Zhong Hang, a foreign exchange dealer with the Bank of China's Shanghai branch.

"It would be advisable if US dollar account holders transfer their deposits into other foreign currencies which bear higher yields such as the Australia dollar or the pound sterling," Zhong added.

Following the central bank's move today, the one-year interest rates on the Australian dollar and the pound sterling are 2.6875 percent and 2.8125 percent, respectively. The one-year interest rates on the euro were reduced to 2.0625.

(eastday.com November 12, 2001)