The PBoC today announced that it would be cutting key interest rates for the second time in three months in response to slowing economic growth and a surprisingly sharp deceleration in inflation. The move had been widely expected for some while.
Effective tomorrow, the benchmark 1-year lending and deposit rates will be lowered by a further 25 basis points to 5.35 percent and 2.50 percent respectively. The central bank also signalled that it will increase the deposit-rate ceiling to 1.3 times from currently 1.2.
Today's moves follow November's larger 40 basis point ease, the first interest rate cut in two years, and February's reduction in banks' reserve requirements. The latter is widely expected to be trimmed again, probably soon.
The Peoples Bank of China (PBoC) is mainland China's central bank with the power to control monetary policy and regulate financial institutions.
The PBoC sets interest rates for mainland China. Interest rates are always divisible by nine, instead of by 25 as in the rest of the world. The renminbi or yuan is the official currency of the Bank and is legal tender in mainland China, but not in Hong Kong and Macau.
The Bank goes back in various forms to 1948. In the 1980s, as part of economic reform, the commercial banking functions of the PBoC were split off into four independent but state-owned banks. In 1983, the State Council promulgated said that the PBC would function as the central bank of China.
Its central bank status was legally confirmed on March 18, 1995 by the 3rd Plenum of the 8th National People's Congress. In 1998, the PBC underwent a major restructuring. All provincial and local branches were abolished, and the PBC opened nine regional branches, whose boundaries did not correspond to local administrative boundaries. In 2003, the Standing Committee of the Tenth National People's Congress approved an amendment law for strengthening the role of PBC in the making and implementation of monetary policy for safeguarding the overall financial stability and provision of financial services. The current governor is Zhou Xiaochuan.
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