REUTERS - China's central bank cut interest rates and relaxed reserve requirements for the second time in two months on Tuesday, cranking up support for a stuttering economy and a plunging stock market that has sent shockwaves around the globe.
The People's Bank of China (PBOC) lowered the one-year benchmark bank lending rate by 25 basis points to 4.6 percent, effective Wednesday. It also reduced one-year benchmark deposit rates by 25 basis points, and will lower the reserve requirement ratio (RRR) by 50 basis points to 18.0 percent for most big banks, effective Sept. 6.
COMMENTARY:
WEI YAO, CHINA ECONOMIST, SOCIETE GENERALE, PARIS:
"The PBOC is doing what it has to do, but it is very likely it is not enough so more will have to be done. The cut in the reserves rate (RRR), that was well expected, so no surprise at all and we have to remember that cutting RRR right now is not easing. It is just preventing a tightening.
"The interest rate cut is a bit of a surprise, but the signal of easing is offset a bit by the recent liberalisation of the deposit rate."
KALLUM PICKERING, SENIOR ECONOMIST, BERENBERG
"Will it be enough? It's difficult to say - it's not a huge rate cut but it does show markets that they are willing to act in order to arrest any slowdowns. It has proved to markets that China is willing to act. Investors have been waiting for them to act and they have.
"Is this sufficient? It might not be, but it does set a precedent that they are engaged and looking to prevent any further declines. The key point to make with China is that it does have considerable policy levers if necessary - the interest rate is not low by global standards and they can always rely on their more traditional policy tools such as public investments if it's a slowdown in the economy that is taking place."
MARK WILLIAMS, ECONOMIST, CAPITAL ECONOMICS, LONDON:
"It might suggest there's a change of tack now from directly trying to shore up the equity market to trying to limit downside risks facing the economy.
"We've seen over the past couple of days that the so-called 'national team' hasn't stepped in to stop the equity market from falling, so perhaps they have realized the futility of trying to prop up prices through direct purchases and it makes sense to concentrate on the macro repercussions.
"It may help shore up equity prices but I don't think we're going to get a big rebound. I think that too many investors in China have been burned badly from what we've seen over the past few weeks and won't be too eager to step back in."
NIE WEN, ANALYST, HWABAO TRUST, SHANGHAI:
"I think the cut of RRR and interest rates is mainly aimed at supporting the stock market, as well as to ease capital outflows following yuan depreciation. It will offer a buffer to the tumbling stock market, but isn't likely to have material support.
"The deposit rate cut is out of our expectation given CPI will soon exceed 2 percent, which will push the real interest rate into a negative territory. There's little room to further cut benchmark rates in the coming few years as negative rates will hurt the economy and financial markets."
ANDREW POLK, RESIDENT ECONOMIST, CONFERENCE BOARD, BEIJING:
"That's quite a move. Seems like everything but the kitchen sink. Clearly the timing is all about the double-whammy of the stock market and downward pressure on the currency, both of which I'd argue they brought on themselves. They stood back and watched while the stock market ran up, then had a ham-fisted response when it fell, that created the need for a correction but made it more difficult to react ... The RRR cut buys them some time as far as having to allow the currency to depreciate, because defending the exchange rate and providing liquidity are at odds with each other."
(Compiled by Ian Geoghegan)
