The People's Bank of China finally acted today and lowered the benchmark one year lending rate by 25 basis points to 4.6 percent with immediate effect. The move ended days of suspense as investors wondered what action the Bank would take to stem the stock market's collapse and the fading economy.
At the same time, it cut the one year savings rate also by 25 basis points to 1.75 percent. The reserve requirement ratio was dropped by 50 basis points with effect from September 6. The reserve requirement ratio is the level of cash commercial banks must park with it. The discount rate had last been lowered in April. Interest rates were last lowered on June 27. The yuan was devalued on August 11 in its attempts to prop up the swooning economy.
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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