On Sunday, May 10, the People's Bank of China cut its one year benchmark rate by 25 basis points to 5.10 percent. The PBoC last cut rates on February 28, also by 25 basis points. The move was in response to the latest round of weak economic data. The Bank also cut the one year deposit rate by 25 basis points, to 2.25 percent.
The Bank said in an accompanying statement that it will "continue to promote real interest rates back towards reasonable levels". The tone of the comments was more aggressive than those of previous policy moves and suggests that the government's appetite for these kinds of adjustments will grow as long as China's low inflation/deflationary environment persists.
The move came after the government announced weaker than expected merchandise trade figures on Friday, with exports dropping 6.2 percent in April from a year earlier, and with continuing signs of weakness in other parts of the economy. On Saturday, the government reported tepid consumer inflation, which ran at a rate of 1.5 percent in April compared with the same month last year.
By reducing interest rates, the government hopes to spur lending to businesses and create more momentum in the world's second-largest economy after the United States. Although China is still growing faster than any other major economy, the slowdown has accelerated in recent months.
China reported that its economy grew just 7 percent in the first quarter of this year, one of the lowest rates in a decade and far below the double digit growth the country had become accustomed to over the past few decades.
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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