After a meeting with the Popular Bank of China (PBOC), the Regulatory Commission of Securities of China and the National Financial Regulation Authority, the Governor of the Chinese Central Bank, PAN GOSHENG, announces cuts in interest rates.
Key quotes
- The world is full of uncertainties.
- China’s financial system is still robust despite clashes.
- The Yuan recovers against the dollar after depreciation.
- The policy rate will be reduced by 10 basic points.
- The coefficient of mandatory reserves (RRR) will be reduced by 50 basic points.
- The inverse repurchase rate to seven days (RR) will be reduced to 1.4%, from 1.5%, as of May 8.
- The reduction of the policy rate will lead to a decrease in the preferential loan rate (LPR) in 10 basic points.
- The RRR reduction will release about 1 billion yuan in liquidity.
- 500,000 million yuan will be established in re-financing loans for the care of the elderly and the consumption of services.
- Interest rates in structural policy tools will be reduced by 25 basic points.
- Banks will be guided in reducing the interest rates of deposits.
Market reaction
After this announcement, the Chinese proxy, the Australian dollar (AUD) received new offers, leading to the aud/USD briefly above 0.6500 before reversing 0.6490, where it now fluctuates. The pair remains modestly flat in the day, at the time of writing.
PBOC FAQS
The main monetary policy objectives of the Popular Bank of China (PBOC) are safeguarding price stability, including exchange rate stability, and promoting economic growth. The Central Bank of China also aims to implement financial reforms, such as the opening and development of the financial market.
The PBOC is owned by the State of the Popular Republic of China (RPC), so it is not considered an autonomous institution. The secretary of the Chinese Communist Party Committee (PCCH), nominated by the President of the State Council, has a key influence on the management and direction of the PBOC, not the governor. However, Mr. Pan Gongsheng currently occupies both positions.
Unlike Western economies, PBOC uses a broader set of monetary policy instruments to achieve its objectives. The main tools include an inverse repurchase rate to seven days (RRR), the installation of medium -term loans (MLF), interventions in the currency market and the reservations requirement rate (RRR). However, the preferential interest rate of loans (LPR) is China’s reference interest rate. The changes in the LPR directly influence the rates that must be paid in the market for loans and mortgages and in the interest paid on the savings. When changing the LPR, the Central Bank of China can also influence the exchange rates of Chinese Renminbi.
Yes, China has 19 private banks, a small fraction of the financial system. The largest private banks are Digital Webank and Mybank lenders, who are backed by technological giants such as Tencent and Ant Group, according to The Straits Times. In 2014, China allowed national lenders completely capitalized by private funds to operate in the financial sector dominated by the State.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
