China Cuts Rates (Again) In Desperate Bid To Buoy Stocks, Rescue Economy
For the third time since November, China has cut its benchmark lending rate.
Hours ago, the PBoC slashed the 1-year lending rate by 25bps to 5.1% and the 1-year deposit rate to 2.25%. The move comes just three weeks after Beijing cut the reserve requirement ratio for the second time this year and marks a continuation of a heretofore unseen trend in China: easing into a stock market rally.
From the PBoC announcement:
The further decline in deposit and lending rates, the focus is to continue to play a leading role in a good benchmark interest rate, the cost of financing to further promote the social downside, support sustained and healthy development of the real economy. According to the unified deployment of the State Council, November 2014 and March 2015, the People’s Bank has twice lowered the financial institutions lending and deposit benchmark interest rate. With the gradual implementation of the policy measures, financial institutions, lending rates continued to decline, the market interest rates dropped significantly, the overall social financing costs decreased. At present, the domestic economy accelerated restructuring, fluctuations in external demand, China’s economy is still facing greater downward pressure. Meanwhile, the overall level of domestic prices remain low, real interest rates are still higher than the historical average for the continued appropriate use of interest rate instruments to provide space. In view of this, the People’s Bank of China decided as from May 11, 2015, loans and deposits of financial institutions lowered the benchmark interest rate by 0.25 percentage point, to create a neutral appropriate monetary and financial environment for economic structural adjustment and restructuring and upgrading.
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