The People's Bank of China 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 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 an almost 20 percent plunge in the country's stock markets over the last two weeks.
The 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. The Bank also lowered the reserve requirement ratio (RRR) for banks that have met certain standards in lending to the farm sector and small and medium-sized enterprises by 50 basis points. It lowered reserve requirement for finance companies by 300 basis points, which it said will help ease funding and cost pressures on state-owned enterprises. The central bank has frequently made such targeted cuts in RRR to spur lending into certain sectors, but the impact has been limited since banks are often reluctant to lend to these sectors amid concerns over collateral and risk.
China last cut interest rates on May 10. It last cut the reserve requirement ratio for all commercial banks by 100 basis points on April 19 which was the deepest single reduction since the depth of the global financial crisis in 2008 following a 50-basis-point cut in February. The PBoC has cut benchmark lending rate by a total of 115 basis points since November, on top of a total of 150 basis cut in system-wide reserve requirements.
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.