In order to cushion slowdown in economic growth, Chinese central bank has reduced its benchmark lending rate and reserve requirements for banks.
Chinese bank’s official on its website reported that 1-year lending rate will fall to 4.35% from 4.6% and 1-year deposit rate by 1.5% from 1.75%. Moreover, reserve requirements for all banks were decreased by 50 basis points, with an extra 50 basis point reduction for some institutions.
To take a further step in the liberalization of interest rates, the PBOC has also removed a deposit rate ceiling.
The expanded monetary easing underscores the government’s determination to fulfill its 2015 growth target of about 7% in the face of deflationary pressures, overcapacity and tepid global demand.
China’s sixth rate cut since November comes as the European Central Bank President signals more policy easing and amid expectations for additional stimulus from the Bank of Japan.
With the economy losing momentum, deflation embedded in the corporate sector and rebalancing making limited headway, the central bank is being directed to ease monetary policy further. And of course, this isn’t the end of the road yet.
With consumer inflation at about half the government’s target and a protracted slump in producer prices, policy makers had room for additional easing.
The joint move on interest rates and the reserve-requirement ratio shows that Beijing is determined to get the car out of the mud and get things moving again.
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