China Cuts Rates In Bid To Boost Economy

“The economy is still under huge downward pressure”, Yao Wei, a Paris-based China economist at Societe Generale SA, wrote before the move. Officials are also acting to boost lending including at the country’s policy banks.

China’s master-stroke move roiled the global currency market and scalped all emerging economy currencies.

At the same time, the PBOC said it was also lowering the reserve requirement ratio by 50 basis points to 18.0% for most big banks.

The question for investors is whether the PBOC’s move Tuesday will restore-or further hurt-confidence in Beijing’s handling of the economy and markets.

The central bank shocked global markets by devaluing the yuan by almost 2% on 11 August.

“So if you were to say what will interest rates be in 2017/2018, I would be very surprised if the UK or US interest rates will be more than 2 or 2.5% even by 2018 and I think across a lot of the rest of the world, in Europe, in Japan they will effectively be zero”.

The bank also promised to pay close attention to liquidity, or the availability of credit, a possible attempt to ease concern a recent rise in capital outflows from China might leave less money for lending. Banks can increase other deposits by only 1.5 times the central bank’s set deposit rate.

Some analysts had expected a rate cut over the weekend, and suggested that disappointment over the lack of one was part of the reason for the collapse in Chinese stocks on “Black Monday” – the biggest single-day slump since 2007.

The rate cut is the fifth by the Chinese central bank since November, while the reserve-requirement cut for all banks is the third this year.