China: PBOC cuts main policy rates to prop up growth and counter disinflationary pressures
October 23, 2015
Despite the still-resilient 6.9% growth tallied in Q3, latest indicators continue to suggest that growth momentum remains weak, while disinflationary forces are mounting. This situation prompted monetary authorities to act to shore up the economy. On 23 October, the People’s Bank of China (PBOC) announced a symmetric cut to its benchmark lending and deposit rates for the sixth time since November 2014. Effective on 24 October, the PBOC reduced both rates by 25 basis points, thus bringing the one-year deposit rate to 1.50% and the one-year lending rate to 4.35%. With this move, both the one-year lending rate and the one-year deposit rate are at the lowest levels on record.
In an additional move, the PBOC decided to lower the reserve requirement ratio (RRR) for large banks by 50 basis points to 17.50% and delivered an extra cut of 50 basis points to the RRR for certain institutions to support small and medium-size enterprises (SMEs) and the agricultural sector. The Bank also removed the deposit rate ceiling for banks, which has widely seen as another step toward financial liberalization.