China cuts interest rates for fifth time since November
Updated : 15:11
The People's Bank of China has cut interest rates for the fifth time since November in a bid to boost its slowing economy.
The PBoC lowered its benchmark lending and deposit rates by 0.25 percentage points, adding the rate cuts will become effective on 26 August and are aimed at reducing corporate borrowing costs.
China's central bank also reduced its reserve requirement ratio by 0.5 percentage points, starting from 6 September, adding the cuts are meant to ensure enough liquidity and stable credit growth.
The moves will relieve some of the strain on the country's trade partners and commodity exporters.
Chinese stocks fell 7.6% on Tuesday, after slumping 8.5% on Monday, when they wiped off their 2015 gains.
"China’s decision to cut reserve requirements by 50bp (0.5 percentage points) will be regarded by many investors as overdue but nevertheless reassuring," analysts at JP Morgan said in a note.
"It was the failure of the authorities to act over the weekend that seemed to spook markets yesterday as it strengthened the impression that Chinese policymakers were starting to rely more heavily on the exchange rate as a way of stimulating demand as opposed to taking additional domestic policy measures.
Analysts at the US bank added that the move was expected to trigger a reverse of yesterday's losses, with dollar and commodities gaining and euro and yen expecting to decline, although the real test would come when the domestic stock market reopens.
Goldman Sachs also welcomed the "much needed" moves to support the economy and market.
"But they are unlikely to be sufficient by themselves. Our baseline forecast is for another 100bp of RRR cuts by the end of the year, most likely in two moves - the exact timing will be data and market dependent.
"Further benchmark interest rate cuts are relatively less likely compared with further RRR cuts, in our view, given policy makers’ residual worry over inflation and concerns on FX outflows, though we still have another 25bp cut in our baseline."