The new decline in interest rates in China

Faced with the sharp slowdown in the activity of the world’s second-largest economy, the central bank has since November multiplied the easing and liquidity injections, with mixed success.

In the face of still gloomy economic conditions, the Chinese central bank, the PBOC, announced on Saturday (June 27th) that it would reduce its interest rates for the fourth time in eight months while reducing reserve requirement ratios for some banks.

From Sunday, its one-year lending rate will be lowered by 25 basis points to 4.85%, and the one-year deposit rate will also be reduced by 25 basis points to 2%, said the institution on its website.

At the same time, the central bank will reduce the reserve requirement ratios for certain financial institutions by 50 basis points: commercial banks serving rural areas, and lending to the agricultural sector and small businesses. These same ratios will be lowered by 300 basis points for financial firms.

Growth at the lowest

Faced with the sharp slowdown in the activity of the world’s second-largest economy, the central bank has since November multiplied the easing and liquidity injections, with mixed success. The indicators remain sluggish and the economic situation continues to darken, against a backdrop of sluggish domestic demand, a sharp decline in foreign trade and a continuing contraction in the manufacturing sector.

The Chinese authorities are eager to rebalance the Chinese economic model – boosting consumption, promoting an upscaling of the industry and expanding services – but remain keen to avoid any sharp deceleration in growth.

Chinese growth is expected to slow this year to 7%, its lowest level in a quarter of a century, due to the combination of a slowdown in the real estate sector, industrial overproduction and the weight of the economy. debt. China’s growth was 7.4% in 2014.

Fall of Shanghai and Shenzen Stock Exchanges

The central bank’s announcements come in the wake of a spectacular plunge in Chinese stock markets, with Shanghai falling 7.4 percent while Shenzhen plummeted 7.87 percent.

China’s stock markets had ballooned by around 50% last year, and their rapid growth continued in 2015: Shanghai jumped more than 55% between early January and mid-June, recently surpassing 5,000 points for the first time. times in seven years. But since their peaks reached two weeks ago, the Shanghai square has declined 18.8% while Shenzhen has dropped 20.3%.