Friday, November 21, 2014

China cuts key rate 40 bps, deposit rate by 25 bps

    China's central bank cut its benchmark one-year lending rate by 40 basis points to 5.6 percent, the first rate cut since July 2012, along with the one-year deposit rate that was cut by 25 basis points to 2.75 percent.
    The People's Bank of China (PBOC) said in a statement that the new interest rates would take effect from Saturday, Nov. 22.
    The PBOC also continued the process of liberalizing interest rates, allowing banks to pay depositors up to 1.2 times the benchmark rate, up from 1.1 times.
     In an accompanying statement, the PBOC said the cut in the lending rate was aimed at guiding market rates lower and help reduce loan pricing benchmarks and other financial products.
    Speculation that China's central bank would cut rates has been growing in recent months as its economy continues to slow, especially the manufacturing and housing sector.
    In the third quarter China's Gross Domestic Product (GDP) expanded by 1.9 percent from the second quarter with annual growth rate easing to 7.3 percent, a level not seen since 2009, from 7.5 percent in the second quarter and 7.4 percent in the first quarter.
    China's government's growth target for 2014 is 7.5 percent, the same as in 2013 when the International Monetary Fund (IMF) estimates its GDP grew by 7.7 percent. The IMF estimates 7.4 percent growth this year and 7.1 percent in 2015.
    Last month the central bank injected some 200 billion yuan of three-month loans into its major banks to improve liquidity, a move that prompted talk that the PBOC was getting ready to cut rates.


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