央行降准降息支持实体经济

The People's Bank of China says the economy is still facing downward pressure. Meanwhile, the global financial market has shown major fluctuations recently. Therefore, the central bank has concluded that it's necessary to apply flexible monetary policies to foster a stronger financial environment and to grow the economy.

Lu Lei, Head of the Central Bank's Research Bureau, says there are mainly two targets for this round of monetary policy.

"Interest rates for one-year lending and deposits have been cut by 25 basis points. This will definitely help to reduce corporate borrowing costs. The central bank also takes adequate liquidity in financial areas into consideration, which is necessary for the development of real economy. "

On Tuesday, the central bank cut interest rates for one-year lending and deposits by 25 bps to 4.6 percent and 1.75 percent respectively.

The central bank also cut the reserve requirement ratio by 50 basis points, starting from September 6th.

The reserve ratio for county-level rural financial institutions has been further cut by an additional half a percentage point and the ratio for financial leasing and auto financing firms by an additional 3 points.

He Weiwen, senior fellow at the Chongyang Institute for Financial Studies at Renmin University, says this round of cuts is stronger than the previous one.

"Last time, it was only targeted to the rural banks and small and micro business. But this time, it's overall across the board, plus additional half a percent cut for rural business and micro small business, that's more stronger. The second point is there is no limit of upward potation after bank deposit rate for long term deposit one year and over. That means a further step towards market privatization. "

China's last adjustment of the reserve requirement ratio was at the end of June.

The latest move comes after the Shanghai Composite Index dropped 8 percent for two consecutive days. Following the moves announced by China's central bank, global markets, especially the European market, rose sharply. However, it still needs time to see whether the two cuts will boost China's A share market.

Li Xunlei, Chief Economist of Haitong Securities, says investors should not be pessimistic.

"The stock market has mirrored people's worry on economic decline, deflation and financial crisis. However, being overly pessimistic over the market is irrational. The Chinese government has enough policy tools to put the economy right."

China has emphasized over the last year that the real economy has entered a "new normal," a period of lower growth and deeper reforms.

For CRI, this is XYee.