China’s central bank said today 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 per cent and the deposit rate to 2 per cent from tomorrow, 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 “stabilising growth” and “to further enhance the efficiency of monetary policy to (support) economic transformations” and are similar to cuts made last month.
China’s economic growth has slowed, with gross domestic product (GDP) expanding at 7.4 per cent 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 Chinese stocks plunged with Shanghai dropping 8.5 per cent 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.
Chinese equities, which more than doubled in value in the year to June 12, eventually closed down 7.40 per cent, 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 yuans USD 147.3 billion), up from 707.9 billion yuan in April, the PBoC said in a statement.