China cuts RRR, lowers interest rates

World Today

File Image of People’s Bank of China. ( CFP photo)

China’s central bank cut both the requirement reserve ratio (RRR), the amount of reserves banks required to hold, and benchmark interest rates on Saturday. The credit-easing move, to be effective on Sunday, aims to “support the real economy and promote restructuring,” said the People’s Bank of China (PBOC) in an announcement.

The central bank cut the RRR for commercial banks serving rural areas, agriculture and small businesses by 50 basis points (bps). The RRR for finance companies, or non-bank financial institutions, will be lowered by 300 bps, the PBOC announced.

Benchmark interest rates have also been cut. Interest rates for one-year lending and deposits are cut by 25 bps to 4.85 percent and 2 percent respectively. Lending of other terms and kinds will also be lowered by the same margin, the announcement said.

It is the third RRR reduction in nearly five months, while the fourth round of interest cuts in nearly seven months.

Against the backdrop of “new normal” of slower but more sustainable growth, China still faces a tough task of stabilizing growth and needs to continue to use the monetary policy tools flexibly in order to lower borrowing costs and boost economy through restructuring, the PBOC said while explaining its decisions to the press.

“China will maintain the prudent monetary policy and further push forward the reforms of interest rate liberalization and the RMB exchange rate formation mechanism,” it said.

Report by Xinhua.