China Joins Global Easing Party By Cutting The Lending And Deposit Rates By 25 bps

Tyler Durden's picture

Update: 9:00 am has come and gone... and no global bailout unlike November 30, 2011. Not a good sign for those expect a central-bank D-Day.

While minutes ago the Bank of England followed in the ECB's footsteps, it was the China central bank that stole England's thunder, announcing an unexpected rate cut moments before 7 am, and thus finally joining the global easing party: this was the first Chinese interest rate cut since 2008. As a reminder, hours before the global central bank intervention on November 30, China announced its first (50 bps) reserve requirement cut since 2008. Is today's PBOC move, which is the first cut of deposit and 1 year lending rates also since 2008, a harbinger of something much bigger to come any second now?

From the PBOC:

The People's Bank of China decided to cut financial institutions RMB benchmark deposit and lending interest rates since June 8, 2012. One-year benchmark deposit rate cut of 0.25 percentage points, year benchmark lending interest rate cut by 0.25 percentage points; other deposit and lending interest rates and individual housing provident fund deposit and lending rates be adjusted accordingly.

 

Since the same day: (1) the upper limit of the floating range of interest rates on deposits of financial institutions was adjusted to 1.1 times the benchmark interest rate; (2) loans from financial institutions interest rate floating range of the lower limit was adjusted to 0.8 times the benchmark interest rate.

And from Bloomberg:

China Cuts Interest Rates for First Time Since 2008

China cut interest rates for the first time since 2008, stepping up efforts to combat a deepening economic slowdown as Europe’s worsening debt crisis threatens global growth.

The benchmark one-year lending rate will drop to 6.31 percent from 6.56 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year deposit rate will fall to 3.25 percent from 3.5 percent. Banks can also offer a 20 percent discount to the benchmark lending rate, the PBOC said, widening from a previous 10 percent.

European stocks and U.S. index futures extended gains as China’s move fanned optimism that policy makers around the world will do more to bolster growth. The announcement, two days before China is due to report inflation, investment and output figures, may signal that the economy is weaker than the government expected.

“This will be the beginning of a rate cut cycle and there will be at least one more reduction this year,” said Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”

The MSCI All-Country World Index added 0.8 percent at 7:30 a.m. in New York. The Stoxx Europe 600 Index jumped 1.2 percent, extending yesterday’s biggest rally in six months, while the Standard & Poor’s 500 Index futures advanced 0.7 percent.

Slower Growth

The central bank last reduced benchmark interest rates in late 2008, when the government unveiled a 4 trillion yuan ($586 billion at the time) stimulus package to counter the effects of the global financial crisis. Interest rates have been unchanged since an increase in July 2011.

Industrial output in China, the world’s biggest producer of steel and cement, probably rose 9.8 percent last month from a year earlier, close to the slowest pace in three years, according to the median estimate in a Bloomberg News survey of 27 economists ahead of a National Bureau of Statistics report due June 9.

Inflation may have moderated to 3.2 percent in May from a year earlier after a 3.4 percent rate in April, a separate survey showed, the fourth month consumer prices have risen by less than the government’s 2012 target of 4 percent.

Today’s move signals policy makers are concerned that the cost of borrowing is crimping companies’ spending and holding back expansion in the world’s second-biggest economy. Three bank officials told Bloomberg News last month that the nation’s biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes.
Slowdown Worsening

The PBOC cut banks’ reserve requirements in November for the first time in three years, and again in February and May, to spur lending.

China’s manufacturing expanded at the slowest pace in six months in May, a government report showed on June 1, adding to signs the nation’s slowdown is worsening. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics pointed to a seventh straight contraction, the longest stretch since the global financial crisis.

Premier Wen Jiabao and the State Council, or Cabinet, pledged last month to place greater emphasis on stabilizing growth after data showed April industrial production, new loans and exports all increased less than economists forecast. The data prompted banks including Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. to cut their economic-growth estimates.

Slowdown Worsening

The PBOC cut banks’ reserve requirements in November for the first time in three years, and again in February and May, to spur lending.

China’s manufacturing expanded at the slowest pace in six months in May, a government report showed on June 1, adding to signs the nation’s slowdown is worsening. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics pointed to a seventh straight contraction, the longest stretch since the global financial crisis.

Premier Wen Jiabao and the State Council, or Cabinet, pledged last month to place greater emphasis on stabilizing growth after data showed April industrial production, new loans and exports all increased less than economists forecast. The data prompted banks including Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. to cut their economic-growth estimates.

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Colombian Gringo's picture

QE to infinity, bitchez.

Popo's picture

Now watch how fast the price of oil kills the latest QE party.

Same story every time...

GetZeeGold's picture

 

 

The boys from Brazil are sending in Barry's campaign contribution check as we speak.....cause it's just freakin crazy to pump that stuff out of the back yard.

 

GMadScientist's picture

And stay tuned for whether or not the price of pork kills the communist party.

 

economics9698's picture

Playing the Yids game, never thought the Chinese would be this stupid.

maxmad's picture

So they are easing to buy more gold and silver!  Makes sense!  Whereas Bernanke is easing to buy more worthless paper! Like Bonds.... Game over!  China wins, they GET IT!

economics9698's picture

The Fed has 8,400 ounces of gold.

Floordawg's picture

That's TONS, not ounces... approximately 8400 UNSUBSTANTIATED TONS.

BlueCollaredOne's picture

I'll believe it when I see it. 

jekyll island's picture

The people who get to use the newly printed money first are the ones who benefit the most.  It's the sheeple that get screwed.  Of course China knows this, they are a big currency manipulator, right Timmay?  

billwilson's picture

More reason for Chinese savers to buy GOLD.Nothing else gives a return ... cause you sure don't want to buy one of the empty condos growing across the land, or put your money in a Chinese bank (stuffed full of NPLs)

fonzannoon's picture

Can someone please explain this to me as I claim total ignorance here. China cuts interest rates. I watch gold in USD go from 1613 (approx) to 1625. Why would gold rise in USD? Would gold not rise in Remninbi and fall in USD as the USD strengthens?

Boilermaker's picture

You're trying to cling to the premise that any of it is legit.  Accept that it's all bogus and you'll be better in the head.

GeneMarchbanks's picture

+1 as usual.

Meanwhile what's the half-life of this recycled policy? Weeks or days?

ThirdWorldDude's picture

+1  

Coordinated global effort to prevent the cardboard ponzi box from crumbling.

"... All the restaurants are Taco Bell now."  - Demolition Man

Comay Mierda's picture

are you trying to make a correlation between the "market" and common sense?

Chaffinch's picture

Fonz - I get your point, but on a gut level it kind of makes sense - interest rates (globally) falling - global rush towards gold - price of gold goes up...
But if TPTB had chosen that moment for a raid, then some pseudo analyst would have made the well-structured argument you put forward to explain why things had gone the other way!

FullFaithAndCretin's picture

China cuts interest rates > more disposable Chinese capital to buy gold > Everyone rushes to buy gold before the Chinese get it all and send the price up > price goes up anyway

fonzannoon's picture

Thanks for the responses. I guess I am insane to try to connect the dots. I will now wait to see if when Ben farts at 10am if it is loud or smelly to see where gold goes from here.

JackT's picture

Make sure you bring your binoculars!

Soul Train's picture

They say it's always loud AND smelly.

That's why they're all smiling. They love the smell of corruption.

http://media.nzherald.co.nz/webcontent/image/jpg/201223/bernankeNewSmileAP_460x230.jpg
CloseToTheEdge's picture

 

“Engage people with what they expect; it is what they are able to discern and confirms their projections. It settles them into predictable patterns of response, occupying their minds while you wait for the extraordinary moment — that which they cannot anticipate.”

sun tzu

 

familiar?

(to the herded)

DormRoom's picture

It means Central Bankers may be trying to keep the shadow economy going, while ignoring  how the shadow economy is underming the  REAL economy.

 

 

mendigo's picture

From the least qualified person here (making it easy to offer an opinion):

The market is not always rational - there are too many variables at play at any moment and changing simultaneously and there is a lag in response to each or the response has been anticipated. There is no making sense of it in the short-term really - there are only shifting probabilities. Which is why I believe "traders" resort to "technical" analysis and consensus - essentially abandoning all reason in the short term. Only in moments of extreme stress to the system is reality revealed however briefly. Perfect ponzi game.

This is why the market craves constant stimulus, good or bad doesnt matter - without volatility it would die of entropy death. 

IMHO 

bigwavedave's picture

So where is my pension fund gonna get its 8% YOY returns now eh? Oh... wait

BandGap's picture

You need to think about working from home with one of those hotties.

GubbermintWorker's picture

From gold, guns, ammo, silver, water, and non-perishable food stuffs?

 

Oh, alcohol and pot might give good returns in the future also :-)

LawsofPhysics's picture

Why would China need to cut rates? I mean they say that they are doing so well. Can't be that they are lying now could it? Definitely need to ask for gold when they order more soybeans. Awesome.

Boilermaker's picture

Can't be.  If there is one thing in this world that is absolute, the Chinese have impeccable integrity and honesty.  You can take THAT to the Chinese bank of your choice.

Boilermaker's picture

and the ES...EXPLODES higher.

This is so f'ing ridiculous.

At least I'll have something to tell my grand-children from my debt prison cell.

caimen garou's picture

china in on the world ponzi scheme, they are learning the how to play the game with advisors from jpm and gs.

LongSoupLine's picture

Their advisor is better than GS and JPM.

Sun Tzu...bitchez.

CloseToTheEdge's picture

+1

 

“To know your Enemy, you must become your Enemy.”

sun tzu

WmMcK's picture

Walt Kelly said something similar.

LULZBank's picture

china in on the world ponzi scheme, they are learning the how to play the game with advisors from jpm and gs.

Dont need much of advisors, its simple: Earn easy dollars and convert to hard and productive assets while waiting for the inevitable. Same as preppers but on a national scale.

post turtle saver's picture

Hey that sounds familiar... issue a bunch of worthless paper and IOUs to buy up petroleum / guns / bullets / nukes / forward bases / other stuff that gives us power to take all the gold you're buying.

 

And people say the MIC doesn't know what they're doing.

Boilermaker's picture

God save the equities valuations!

God save the equities valuations!

VonManstein's picture

or maybe it means the FED can hold off like the BOE?

BlandJoe24's picture

BOJ (a few days ago): no easing/qe

ECB (two days ago): no easing/qe

BOE (today): no easing/qe

 

Tyler over-dramatizing:  There is no current  Global Easing/QE Party

There may be one later....or not....?

The Swedish Chef's picture

Gold seems to say yes... 

Dr. Engali's picture

So how much will Ben buy? 1 trillion? 2 trillion? It's going to have to be big in order to not disappoint the heroin junkies.

indianajohns04's picture

looks like FAZ loses again!