The Chinese Central Bank has lowered down lending rates for the fourth time in a row since November and it has also restricted the amount of cash that some banks shall hold as reserves in order to boost the economy.
The move by the Chinese Central Bank has come in light of the poor economic performance of China in the current times, which is the worst in a quarter century. It also highlights the concerns of China about money flow in some of the most needed sectors of the economy.
There is a concern in the Chinese government about higher borrowing costs that account to bankruptcies and loss in jobs. It was in late 2008 at the time of global financial crises that the Central Bank of China cut the interest rates and reserve requirements for banks.
The stock market of the country has also suffered a great dip of 20 percent and it is of major concern for the investors too. According to Xu Hongcai, a senior economist at the China Centre for International Economic Exchanges, “The simultaneous cuts in interest rates and reserve requirement are a forceful move, indicating the downward pressure on the economy is very big.”
“The monetary policy adjustment will also help curb sharp fluctuations in the stock market.” he further said. The cost of borrowing is quite high in China despite the rate cuts as the banks are being complacent in passing over the rate cuts to their customers.
The People’s Bank of China has pledged to lower down the one year bank lending rate by 25 basis points that account for 4.85 percent. It has also reduced the one year benchmark deposit rate by as much as 25 basis points that account for 2 percent.
The reserve requirement for finance companies has been reduced by 300 basis points in order to aid funding. According to a statement by the Central Bank of China, “The Interest rate and RRR cuts will help stabilize growth, adjust structures and lower social financing costs.”