What China was supposed to do over the weekend, and waited until its stock market tumbled another 16%, it has just done, because as MarketNews, Reuters and Bloomberg all just blasted, moments ago the PBOC cut both the benchmark and RRR rates:
- CHINA PBOC CUTS INTEREST RATES
- CHINA PBOC CUTS REQUIRED DEPOSIT RESERVE RATIO
- CHINA PBOC CUTS 1Y DEPOSIT RATE BY 25 BPS
- CHINA PBOC CUTS 1Y LENDING RATE BY 25 BPS
- CHINA PBOC CUTS BANKS DEPOSIT RESERVE RATIO BY 50 BPS
- CHINA PBOC: OVERALL PRICE LEVEL STILL LOW DESPITE PORK PRICE
- CHINA PBOC: GLOBAL FINANCIAL MKT SEES BIG VOLATILITY
- CHINA PBOC: ECO STILL FACING DOWNWARD PRESSURE
- CHINA PBOC LIFTS CEILING ON DEPOSIT INTEREST RATES
From the PBOC [14]:
People's Bank of China, from August 26, 2015, down financial institutions RMB benchmark lending and deposit interest rates in order to further reduce financing costs. Among them, one-year benchmark lending rate by 0.25 percentage point to 4.6%; year benchmark deposit rate by 0.25 percentage point to 1.75%; all other grades of loans and deposit benchmark interest rate, adjusted individual housing provident fund deposit and lending rates. Meanwhile, the release of more than one year (excluding one year) fixed deposit interest rate floating ceiling, demand deposits and time deposits of one year or less floating interest rate ceiling unchanged.
Since September 6, 2015, down financial institutions RMB deposit reserve ratio by 0.5 percentage points, in order to maintain reasonably adequate liquidity in the banking system, guide steady moderate growth of money and credit. Meanwhile, to further enhance the financial institutions to support the "three rural" and the ability of small and micro enterprises, additional lower county rural commercial banks, rural cooperative banks, rural credit cooperatives and rural banks and other rural financial institutions reserve ratio by 0.5 percentage points. Additional reduction of financial leasing companies and auto finance companies reserve ratio three percentage points, to encourage it to play a good role in the expansion of consumption.
This move takes the RRR from 18.50% to 18.00%, the deposit rate from 2.00% to 1.75%, the lending rate from 4.85% to 4.60%, and the PBOC also announced a further 300 bps RRR cut for financial leasing and auto leasing companies.
Here is the initial take from the WSJ:
China on Tuesday cut interest rates by one-quarter of a percentage point and reduced bank-reserve requirements by half of a percentage point amid market turmoil.
China also did away with its ceiling on most bank deposits.
The People’s Bank of China said in a statement on its website that it also cut bank reserve requirements for rural banks by an additional half a percentage point.
The interest-rate cut is effective Wednesday, while the reserve-requirement reduction is effective Sept. 6. 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.
The moves came after China’s stock-market slumped again amid worries over a slowdown in growth. Its main stock index fell 7.6% on Tuesday after an 8.5% fall on Monday, bringing it down more than 20% over four trading days.
This is what the PBOC said in connection to the rate cut ( [15]google translated):
1. what the introduction of the combination of measures to cut interest rates drop quasi major consideration is?
A: At present, China's economic growth is still downward pressure, steady growth, adjusting structure, promoting reform, benefit people's livelihood and risk prevention task is still very arduous, global financial markets recently greater volatility, the need for more flexible use of monetary policy tools to create a favorable environment for monetary and financial adjustment of economic structure and stable and healthy economic development.
The lower the benchmark interest rate loans and deposits, the main purpose is to continue to play a guiding role good benchmark interest rate, help lower the cost of financing community to support the sustainable and healthy development of the real economy. Since November 2014, the PBC has four lowered the benchmark interest rate loans and deposits, guide financial institutions lending rates continued to decline. July 2015, the weighted average interest rate of loans from financial institutions was 5.97%, the first decline since 2011 to the level of financing high social cost below 6% effective mitigation. Although the past two months, CPI rose slightly, but the main impact of structural factors such as rising pork prices are significantly affected, the overall price level is still at historically low levels, but also for the re-use price tools to further contribute to the reduction of social financing the cost of providing the conditions. To this end, the approval of the State Council, the People's Bank of China decided to further cut the benchmark interest rate loans and deposits, lending rates of financial institutions and to promote all kinds of market interest rates continue downward, to consolidate the macro-control policy effects preliminary.
The lower the deposit reserve ratio, mainly based on changes in the banking system liquidity, adequate long-term liquidity, in order to maintain adequate liquidity and reasonable, and promote stable and healthy economic development. People's Bank recently improved the exchange rate of the RMB against the US dollar quotation mechanism, and spreads over the central parity and the market exchange rate correction, reaching equilibrium in the foreign exchange market in the process, can cause fluctuations in liquidity, requiring remedy the resulting liquidity gap and reduce the deposit reserve ratio may play such a role. In addition, the county additionally reduce rural commercial banks, rural cooperative banks, rural credit cooperatives, rural banks and financial leasing companies, auto finance companies RRR, related primarily to guide financial institutions to further increase the "three rural "Small and micro enterprises and the expansion of consumer support.
2, the combination of interest rate cuts open the background and significance of what one-year deposit rate over the floating ceiling is? Why should we continue to keep the upper limit of the floating interest rate deposits and demand deposits within the same year?
A: According to the State Council's strategic plan, in recent years, the People's Bank to accelerate market-oriented interest rate reform, and made important progress. Currently, in addition to the deposit interest rate controls have been fully liberalized, the deposit rate floating ceiling has been expanded to 1.5 times the benchmark interest rate for businesses and individuals formal certificates of deposit issued, the market interest rate pricing mechanism and continuously improve self-discipline, the central bank interest rate management capacity to gradually enhance the smooth introduction of the deposit insurance system, further promote market-oriented reform of interest rate conditions are more mature. Meanwhile, the current overall price level in China is low, the total amount of ample liquidity in the banking system, relatively small upward pressure on market interest rates, but also to promote market-oriented interest rate reform to provide a better macroeconomic environment and the time window.
In this case, put the reform in regulation with a combination of interest rate cuts and further promote the interest rate market-oriented reforms, open the one-year deposit interest rate floating above the upper limit of interest rate reform marks another important step forward. As financial institutions to further expand the independent pricing space, is conducive to the promotion of independent pricing capability of financial institutions to improve and accelerate the transformation of the business model, improve financial services, but also help promote the fund price more realistically reflect the market supply and demand, give full play to the market decisive action, and further optimize the allocation of resources, promoting economic structure adjustment and transformation and upgrading, create favorable conditions for healthy and sustainable economic and financial development.
Remain within the one-year deposit and deposit interest rate floating ceiling unchanged, reflecting the "first long-term, short-term," the basic order of progressive liberalization of deposit interest rate ceiling of reform ideas, but also with international practice consistent. Judging from past experience, this order to promote market-oriented interest rate reform, help foster and exercise independent pricing capability of financial institutions, to lay a more solid foundation for the full realization of the final interest rate market; but also conducive to the stability of financial institutions deposit interest rate and overall financing costs, contribute to the reduction of social financing costs, for the sustained and healthy economic development has a positive meaning.
3, release the one-year deposit rate over the floating cap, how to guide scientific and rational pricing of financial institutions?
A: The release of more than a year after the floating deposit rate cap, the PBC will continue to improve related measures, further scientific and rational pricing guide financial institutions to maintain a fair and orderly market competition order. First, we continue to publish benchmark deposit rate by existing maturities. Further play the guiding role of the benchmark rate, providing an important reference for the one-year deposit rate over pricing. Second is to improve the regulation of interest rates and the transmission mechanism. Further improve the central bank interest rate management system, enhance the ability to control interest rates. Strengthen financial market benchmark interest rate to cultivate and improve the market interest rate system, improving monetary policy transmission. Third is to play the role of industry self-regulation. Guide market interest rate pricing discipline mechanism to further play an important role in a good industry pricing discipline, in accordance with the principles of compliance with laws and regulations, incentives and constraints of both, for a better interest rate pricing financial institutions continue to give priority to give more power market pricing and product innovation, expand the main issue certificates of deposit and interbank deposit investment range; with the necessary self-restraint on deposit interest rates beyond a reasonable level, disrupt the market order financial institutions.
4. recent central bank action to provide liquidity What?
A: The central bank to provide liquidity more channels and tools, in addition to the RRR, the recent expansion of the central bank has also implemented a reverse repo, the medium-term lending to facilitate (MLF), supplementary mortgage loans (PSL) and so increase market liquidity and loanable funds initiatives. Since August, the cumulative carry out reverse repo operations put in 565 billion yuan of liquidity to carry out the central treasury cash management deposits at commercial banks operating liquidity put 60 billion yuan. August 19 six-month period to carry out MLF operating 110 billion yuan, 3.35% interest rate, at the same time increase market liquidity and guide financial institutions to increase small and micro enterprises and the "three rural" and other key areas of the national economy and weak links support. Continue to provide long-term stability, adequate sources of funding for the development costs of the financial support shed change by PSL, 7 PSL amounted to 846.4 billion yuan at the end, an increase of 463.3 billion yuan over the beginning. The timely play of price leverage, as well as adjustments to adapt keep the benchmark lending rate, since the funds rate three times this year cut PSL to increase the shantytowns, support, promote lower financing costs. In addition, the central bank continues through agriculture, support small refinancing and rediscount support financial institutions to increase the "three rural" small and micro enterprises credit. The end of July, the balance of agriculture lending 213.9 billion yuan, an increase of 26.2 billion yuan over the previous year; supporting small balance lending 62.5 billion yuan, an increase of 25.4 billion yuan over the previous year; rediscount balance of 127.2 billion yuan over the previous year increased 11.8 billion yuan.
Next, the central bank will continue to closely monitor changes in liquidity, comprehensive use of various instruments properly adjusted combinations of liquidity, to maintain adequate liquidity and reasonable and stable operation of the money market, to guide steady moderate growth of money and credit, and promote stable and healthy economic development.
