China central bank eases policy again to support economy

Sat Jun 27, 2015 9:00am EDT
 
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By Kevin Yao and Nicholas Heath

BEIJING (Reuters) - China's central bank cut lending rates for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest performance in a quarter century.

Saturday's combined easing highlights Beijing's concerns that money isn't flowing to some of the most-needed sectors in the economy and that stubbornly high borrowing costs that could fuel bankruptcies and job losses. The last time the central bank simultaneously cut interest rates and reserve requirements was at the height of the global financial crisis in late 2008.

The latest move could also be aimed at comforting investors following a 20 percent plunge in the country's stock markets over the last two weeks, some analysts said.

"The simultaneous cuts in interest rates and reserve requirement is a forceful move, indicating the downward pressure on the economy is very big,” said Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE), a Beijing-based think-tank.

"The monetary policy adjustment will also help curb sharp fluctuations in the stock market."

Some government economists have been calling for interest rate cuts to help lower real borrowing costs and help local governments to swap their maturing debt, although some private sector analysts have recently pared their expectations on policy easing.

Despite the drumroll of rate cuts, the real cost of borrowing in China remains stubbornly high, due in part to cooling inflation and banks' reluctance to pass lower rates on to their customers. That has further squeezed manufacturers struggling with tepid demand.

The People's Bank of China (PBOC) said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.85 percent, and reducing the one-year benchmark deposit rate by 25 basis points to 2 percent.   Continued...

 
A sign for pedestrians is seen in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing November 24, 2014. 
REUTERS/Kim Kyung-Hoon/Files