China Cuts Rates Again

China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown.

The one-year lending rate will drop to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling, a further step in the liberalization of interest rates.

The expanded monetary easing underscores the government’s determination to meet its 2015 growth target of about 7 percent in the face of deflationary pressures, overcapacity and tepid global demand. China’s sixth rate cut since November comes as the European Central Bank President signals more policy easing and amid expectations for additional stimulus from the Bank of Japan.

“Clearly the People’s Bank of China is on a mission to ease policy and has been for a year,” said George Magnus, a senior independent economic adviser to UBS Group AG in London. “With the economy losing momentum, deflation embedded in the corporate sector and rebalancing making limited headway, the central bank is being directed to ease monetary policy further. And of course, this isn’t the end of the road yet.”

Stock-index futures jumped from Hong Kong to New York and European stocks extended gains. The Stoxx Europe 600 Index added 2 percent at 1 p.m. in London.

Gross domestic product rose 6.9 percent in the three months through September from a year earlier, according to the National Bureau of Statistics, beating economists’ estimates for 6.8 percent. An out-sized contribution from financial services, boosted by a surge in share trading from the year earlier period, helped prop up the GDP reading, which was the slowest quarterly expansion since 2009.

With consumer inflation at about half the government’s target and a protracted slump in producer prices, policy makers had room for additional easing.

“Chinese officials are stepping on the gas,” said Frederic Neumann, co-head of Asia Economics Research at HSBC Holdings Plc in Hong Kong. “The joint move on interest rates and the reserve-requirement ratio shows that Beijing is determined to get the car out of the mud and get things moving again.”

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell