China Monetary Policy

China

China: PBOC cuts both benchmark rates and the RRR to foster growth

June 27, 2015

On 27 June, the People’s Bank of China (PBOC) decided to cut both its benchmark lending and deposit rates for the fourth time since November 2014. The PBOC reduced both rates by 25 basis points, thus bringing the one-year deposit rate to 2.00% and the one-year lending rate to 4.85%. With this move, the one-year lending rate is at the lowest level on record, while the one-year deposit rate is edging closer to all-time lows. The PBOC also decided to lower the reserve requirement ratio (RRR) by 50 basis points for lenders that meet certain levels of loans to agricultural and small medium-sized enterprises. As a result, the RRR for big lenders is now at 18.00%. Moreover, the Bank cut the reserve requirement ratio for finance companies by 300 basis points. All measures were effective as of 28 June.

The unusual simultaneous cut to both of the benchmark rates and the RRR suggest that Chinese authorities are strongly committed to avoiding a sharp slowdown of the economy and that they want to act decisively to ease financing costs. According to analysts, these measures are also intended to tame the sharp decline in the Chinese stock markets. The Shanghai Composite Index has lost around 20% of its value since mid-June.

Despite the bold monetary easing that has been unfolding since the end of 2014, analysts foresee that the PBOC will take further action in the coming months. In this regard, Changchun Hua, China Economist at Nomura International, states:

Growth momentum has been stabilising but remains weak, which is consistent with our previous outlook, and we see little need to revise our baseline policy forecast of a total of four RRR and four benchmark interest rate cuts over 2015. Following this most recent RRR and policy rate cut, we expect one more 50bp RRR cut and one more 25bp benchmark rate cut over the remainder of this year. Policymakers might need some time to assess the effect of ongoing easing, so we believe the next move could happen in August.

FocusEconomics Consensus Forecast panelists expect the one-year lending rate and the one-year deposit rate to end the year at 4.87% and 2.03%, respectively. For next year, the panel sees the benchmark lending rate at 4.79% and the benchmark deposit rate at 1.93%.


Author: Ricard Torné, Lead Economist

Sample Report

Looking for forecasts related to Monetary Policy in China? Download a sample report now.

Download

China Monetary Policy Chart


China Monetary Policy June 2015 0

Note: One-year lending rate, one-year deposit rate and reserve requirement ratio (RRR) for large banks in %.
Source: People’s Bank of China (PBOC).


China Economic News

  • China: Inflation slows in November

    December 10, 2018

    Consumer prices fell 0.3% from the previous month in November, contrasting October’s 0.2% increase and marking the lowest print in eight months.

    Read more

  • China: Manufacturing sector slows to a standstill in November, PMI inches down to over two-year low

    November 30, 2018

    The manufacturing purchasing managers’ index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) edged down to an over two-year low of 50.0% in November from 50.2% in October, undershooting market expectations of a stable 50.2% reading.

    Read more

  • China: Growth in house prices inches up in October

    November 15, 2018

    House prices in 70 large- and medium-sized cities rose 1.0% in October in month-on-month terms according to a weighted average index calculated by Thomson Reuters from data issued by the National Bureau of Statistics (NBS).

    Read more

  • China: Industrial production growth inches up in October

    November 14, 2018

    Industrial production expanded 5.9% year-on-year in October, up from a 5.8% rise in September and overshooting market expectations of 5.8%. October’s print mainly reflected faster growth in the mining and manufacturing sectors, while the dynamics in the production and distribution of electricity, heating power, gas and water softened compared to September. On a month-on-month basis, industrial production increased 0.48% in seasonally-adjusted terms in October, unchanged from September’s expansion.

    Read more

  • China: Investment growth accelerates to four-month high in October

    November 14, 2018

    Urban fixed asset investment expanded 5.7% annually in the first 10 months of the year, up from the 5.4% increase in the first 9 months of the year.

    Read more

More news

Search form