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As Chinese Stocks Decline Further, People’s Bank of China Intervenes

As Chinese Stocks Decline Further, People’s Bank of China Intervenes

Ryan Cox,

Talking Points:

  • Chinese equities extend losses for fourth straight trading day with a 7.6% drop
  • PBoC cuts one-year interest rate 25bp and lowered the reserve ratio 50bps
  • One year timeline of PBoC rate cuts and exchange rate methods

Chinese stocks extended losses into Tuesday’s trading session prompting the People’s Bank of China into action to help stabilize the markets. The bank took a two-step approach to easing as they announced an interest rate cut and reduction in reserve requirements. The one-year benchmark bank lending rate and one-year benchmark deposit rates were both cut by 25 basis points. The reserve requirement ratio was lowered by 50 basis points to 18 percent. In addition to these most recent monetary actions, the Chinese central bank also announced it would let banks decide the rates they want to offer for one-year-deposits.

While the policy authority’s most recent move was driven by a reaction to sharp declines in capital markets, the effort reinforces a longer-term goal laid out by officials to liberalize China’s financial system. Over the past year we can see below the multiple rate cuts and exchange rate method changes by the bank to stimulate the Chinese economy. Recently, upon reviewing the country’s suitability for inclusion of the Yuan into the IMF’s SDR (offering the country reserve status), the group stated there were remaining shortfalls in meeting the necessary criteria. They were given an extension on the next review of just over 12 months to meet the required changes.

  • August 25, 2015 PBoC cuts one-year benchmark bank lending rate by 25 basis points to 4.60 percent, and cuts reserve requirement ratio 50 basis points to 18 percent.
  • August 12, 2015- PBoC lowered the Yuan reference rate by 1.6 percent for second consecutive day.
  • August 11, 2015- PBoC changes Yuan fix methodology, lowers the Yuan reference rate by 1.85 percent.
  • June 27, 2015 – PBoC cuts one-year benchmark bank lending rate by 25 basis points to 4.85 percent.
  • May 10, 2015 – PBoC cuts one-year benchmark bank lending rate by 25 basis points to 5.1 percent.
  • April 19, 2015 – PBoC cuts reserve requirement ratio by 100 basis points to 18.5 percent.
  • February 28, 2015- PBoC cuts one-year benchmark bank lending rate by 25 basis points to 5.35 percent.
  • February 04, 2015- PBoC cut reserve requirement ratio by 50 basis points to 19.5 percent.
  • November 21, 2014- PBoC cuts one-year benchmark bank lending rate by 40 basis points to 5.6 percent and one-year deposit rate by 25 basis points to 2.75 percent.
As Chinese Stocks Decline Further, People’s Bank of China Intervenes

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