Saturday, June 27, 2015

China cuts rate by 25 bps, 4th cut since November 2014

    China's central bank cut it benchmark one-year lending rate for the third time this year and lowered the reserve requirements for some banks, saying that China's economy is still facing great downward pressure while domestic inflation remains low and real interest rates below their historical average.
    The People's Bank of China (PBOC) cut its key rate by 25 basis points to 4.85 percent for a total cut of 75 basis points this year and by a total of 115 points since November last year when it first started to ease its policy stance in response to the weakening economy.
    In addition to cutting its benchmark rate, a move that was expected by many economists, the PBOC also cut its one-year deposit rate by 25 basis points to 2.0 percent and trimmed the reserve ratio for banks that specialize in lending to rural areas and small businesses by 50 basis points.
    For financial firms the central bank slashed the amount of money they have to retain at the PBOC by 300 basis points, saying in a statement that this should "enhance internal financing of large enterprises, improve cash flow efficiency, relieve state-owned funds and cost pressures, and support real economic restructuring and development."
    The monetary easing comes after an almost 20 percent plunge in Chinese shares in the last two weeks, including Friday's sharp 7.4 percent fall in the Shanghai Composite Index.
    China's inflation rate eased to 1.2 percent in May from 1.5 percent in April.
     Its Gross Domestic Product decelerated further to growth of only 1.3 percent in the first quarter of this year for annual growth of 7.0 percent, down from 7.3 percent in the previous quarter, but in line with the government's 2015 target of about 7 percent.



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