China’s central bank, the People’s Bank of China, has cut its one-year benchmark bank and one-year benchmark deposit rate by 25 basis points in an effort to jumpstart a slowing economy.

Earlier, Chinese stocks rose over 1% on Friday after President Xi Jinping indicated the economy will not suffer a hard landing.

China PoBC Deposit Rates

PBoC cuts rates for sixth time since November

The People’s Bank of China said on its website that it was lowering its one-year lending rate by 25 bps to 4.35% effective October 24th, and boosting the one-year deposit rate by 25 bps to 1.50%. The central bank said it intends to improve regulation of interest rates and improve the monetary policy transmission mechanism.

European equities are witnessing another buoyant day on Friday on the back of PBoC’s rate cut and European Central Bank president Mario Draghi expressing the possibility yesterday of more QE or a rate cut in December.

As outlined by ValueWalk, last August, PBoC announced it would trim the benchmark one-year lending rate by 25bp to 4.60% and the one-year deposit rate by 25bp to 1.75% effective August 26, 2015. This was the fifth consecutive interest rate cut in the current easing cycle, which started with a 40bp rate cut on November 21, 2014. Morgan Stanley analysts led by Chetan Ahya predicted in their research report that the PBoC’s August announcement could be followed by two more rate cuts of 25bp each before 1Q16.

China has pursued its most aggressive policy easing cycle this year since the 2008/09 global financial crisis, as policymakers seek to invigorate an economy beset by weak demand and excessive industrial capacity.

PBoC trims RRR by 50 bps

The People’s Bank of China also unveiled its decision to cut the reserve requirement ratio (RRR) for all banks by 50 basis points to 17.5% on Friday, with an extra 50 basis points reduction for some lenders. The latest initiatives are seen as a sign that the world’s second largest economy was doing more to meet its growth target of “about 7%” this year.

The PBoC also announced that it will increase regulation of interest rates. The central bank also indicated its intention to remove deposit ceiling for banks.

China’s official figures revealed this week that the country grew at the slowest pace in six years in the third quarter. China’s annual GDP rose by 6.9%. Though this was higher than the 6.8% forecast by economists, it marked the lowest pace of expansion since early 2009.

In the meanwhile, home price data indicated a mild recovery in the Chinese property market. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen and the Shanghai Composite Index both rose around 1.3% to 3,571.24 points and 3,412.43 points, respectively. Both indices rose for the third week in a row.

With China’s Communist Party scheduled to meet next week, officials are under pressure to reassure the world about Beijing’s commitment to economic reform and ability to deliver steady growth. Chinese officials will discuss and approve social and economic plans for the next five years.

China interest rates versus GDP growth PBoC

Evercore gives a brief summary as follows:

Monetary easing moves this cycle:
6th lending rate cut:
40, 25, 25, 25, 25, 25 bps

6th deposit rate cut:
25, 25, 25, 25, 25, 25 bps

4th universal RRR cut:
50, 100, 50, 50 bps

One targeted
RRR cut:
50 bps

Natixis ISIS opines:

The PBOC has again slashed interest rates, as expected. These easing measures are intended to shore up domestic demand and counter balance persisting deflationary pressures in China. In addition to easing interest rates, we believe more fiscal support is also coming to boost infrastructure investment. More importantly, ahead of the big party meeting next week, it has finally removed the deposit rate ceiling for banks.

PBOC rates China Yuan Chinese rates swaps
Via S&P CapIQ