Peo­ple’s Re­pub­lic of China cuts in­ter­est rate by 25 ba­sis points

The China Post - - COMICS -

The Peo­ple’s Re­pub­lic of China’s cen­tral bank said Satur­day it would again re­duce in­ter­est rates by 25 ba­sis points, its fourth such cut since Novem­ber as it tries to boost growth.

The bench­mark in­ter­est rate would be re­duced to 4.85 per­cent and the de­posit rate to 2 per­cent from Sun­day, the Peo­ple’s Bank of China (PBOC) said on its web­site.

The PBOC also an­nounced that it will cut the re­serve re­quire­ment ra­tios (RRR) by 50 ba­sis points for com­mer­cial banks serv­ing ru­ral ar­eas, agri­cul­ture and small busi­nesses.

The PBOC has now cut in­ter­est rates four times since Novem­ber and this year also re­duced the amount of cash banks must keep in re­serve three times, as well as us­ing other mea­sures to in­ject liq­uid­ity into the mar­ket.

The bank said the latest moves were aimed at “sta­bi­liz­ing growth” and “to fur­ther en­hance the ef­fi­ciency of mon­e­tary pol­icy to (sup­port) eco­nomic trans­for­ma­tions” and are sim­i­lar to cuts made last month.

Main­land China’s eco­nomic growth has slowed, with gross do­mes­tic prod­uct ( GDP) ex­pand­ing at 7.4 per­cent in 2014, the low­est rate in 24 years, prompt­ing the cen­tral bank to in­ter­vene.

The moves have had mixed suc­cess as in­di­ca­tors re­main sub­dued and do­mes­tic de­mand low, along with a sharp de­cline in for­eign trade and a con­tin­ued con­trac­tion in man­u­fac­tur­ing.

On Fri­day main­land stocks plunged with Shang­hai drop­ping 8.5 per­cent at one point, its big­gest loss in eight years, as in­vestors that had flooded the mar­ket on mar­gin trad­ing — bor­row­ing cash to buy stocks — ran for the door.

Main­land eq­ui­ties, which more than dou­bled in value in the year to June 12, even­tu­ally closed down 7.40 per­cent, or 334.91 points, at 4,192.87, its low­est point since the start of May.

“The cen­tral bank doesn’t want a panic caused by the stock rout to spread,” Shen Jian­guang, chief Asia economist at Mizuho Se­cu­ri­ties Asia Ltd. in Hong Kong told Bloomberg News.

“That would lead to fi­nan­cial in­sta­bil­ity.”

Bank lend­ing ex­panded in May and the broader money sup­ply also grew, the cen­tral bank said ear­lier this month, in a sign its ef­forts to loosen pol­icy to boost growth were bear­ing fruit.

Do­mes­tic banks ex­tended new loans of 900.8 bil­lion yuan (US$147.3 bil­lion), up from 707.9 bil­lion yuan in April, the PBOC said in a state­ment.

To­tal so­cial fi­nanc­ing — a broader mea­sure of credit in the econ­omy — reached 1.22 tril­lion yuan in May, it said, up from 1.05 tril­lion yuan in April.

But af­ter a slew of weak in­fla­tion and trade data ear­lier in June, an­a­lysts pre­dicted fur­ther eas­ing mea­sures.

The coun­try’s econ­omy ex­panded 7.0 per­cent year-on-year in the first quar­ter, slump­ing to a post global fi­nan­cial cri­sis low, even as Bei­jing took steps to bol­ster growth.

The gov­ern­ment has cut the an­nual growth tar­get for 2015 to “ap­prox­i­mately” seven per­cent.

“The im­prove­ment in eco­nomic growth mo­men­tum is still frag­ile,” Yang Zhao, Hong Kong­based chief China economist at No­mura Hold­ings Inc., wrote in a June 26 note. “Share mar­ket sen­ti­ment has cooled.”

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