2015-06-27

PBOC Goes Nuclear: Cuts Interest Rates and RRR Following Market Plunge

WSJ: People’s Bank of China Cuts Interest Rates
The PBOC cut its one-year benchmark lending rate by a quarter of a percentage point to 4.85% and its one-year deposit rate by the same scale to 2%.

At the same time, it also lowered the reserve requirement by half a percentage point for banks with sizable lending to farmers and small businesses.

The central bank has rarely cut both interest rates and the reserve-requirement ratio on the same day. The last time it did so was in October 2008, the height of the global financial crisis.

Yu Fenghui: Why did the central bank drop a nuke? 央行周末為何放出“核武器”

Yu says the dual cuts are designed to give the stock market a shot in the arm, but he wonders how much of an effect it can have. He wonders what happens if stocks open at a high on Monday and then trade lower on the day, it would show the PBOC's rarely used weapon cannot save the market.

While the stock market may have influenced the decision, if the PBOC wanted to hike rates before Q3 starts, this was the last weekend to do it.

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