The moves “intensify concerns that the measures taken so far have had limited traction in supporting growth and that more drastic measures might be required in the coming months”, said Eswar Prasad, a professor of trade policy at Cornell University, who used to head the China division of the worldwide Monetary Fund. China is joining a lineup of central banks seeking to prop up economic growth by easing monetary policy, even as the U.S. Federal Reserve considers an interest-rate increase.
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Wang, however, expects the PBOC to cut interest rates one more time this year and once again in early 2016 to bring 1-year deposit benchmark rate to 1 percent and lending rate to 3.85 percent.
“The rate cut and reserve cut are earlier than the market had expected”.
China will lower the reserve requirement ratio – the amount of cash that major banks need to keep on hand – in the future at a “normal” pace, Yi said.
From Saturday, the RRR for financial institutions across China will be slashed by 0.5 percentage points, to further reduce the cost of financing. The central bank also said China’s inflation stayed on a lower level overall, leaving a few room for a rate cut. “Meanwhile, Asian and European stocks rallied as both were boosted by the prospect of more stimulus from the European Central Bank”.
Aviva Investors fund manager of the Asia Pacific equities Xiaoyu Liu says the Chinese government wants to use these policies to “smooth out” the country’s transition from an investment to consumer-driven economy.
The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value.
Chris Beauchamp, at IG Index looked at the markets response: ” The action seen in the past 24 hours has been more than enough to make up for the sleepy atmosphere that prevailed in the first half of this week.
“The expanded monetary easing underscores the government’s determination to meet its 2015 growth target of about 7 percent in the face of deflationary pressures, overcapacity and tepid global demand”, Bloomberg News reports.
Shares in China-exposed luxury goods retailer Burberry, up 4 percent, were also boosted. Chinese officials will discuss and approve social and economic plans for the next five years. The move drove bond yields down, with Irish two-year interest rates joining many others by falling below zero – to -0.2 per cent – and 10-year yields at just over 1 per cent.
A few days back, China reported its worst economic performance noted since the financial crisis that hit the globe.
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The policy will “allow greater leeway for market forces to influence bank loan and deposit rates and the Chinese financial system generally”, Bill Adams, senior worldwide economist at PNC Financial Services Group, said in a research note.
