China cuts benchmark interest rates and RRR for certain banks

PBoC on Saturday cut its benchmark interest rates for the fourth time in seven months as it steps up policy easing to boost the economy. The one-year lending rate was reduced by 25bps to a record low of 4.85%, while the one-year deposit rate was reduced by 25bps to 2%, notes Commerzbank. 

At the same time, "targeted" reserve requirement ratio (RRR) cut was made for the third time in five months. The RRR for banks that lend to the small and medium enterprises and the farming sector was reduced by 50bp, while the RRR for non-bank financial institutions was lowered by 300bps. The RRR for large banks remains unchanged at 18.5%. 

While the rate cuts have been largely expected, Saturday's move appears timed to restore market confidence following the sharp sell down which saw the Shanghai Composite Index tumbling 18.9% over the past two weeks. 

"We see the authorities persisting with loose monetary conditions and seemingly testing the lower bound for growth in the economy before there are increased stresses, eg. increased job losses and default pressures", says Commerzbank. For USD-CNY, it continued to hold steady at around the 6.2090 level.