The People’s Bank of China announced on Tuesday a cut of its benchmark lending and deposit rate by 0.25 percent effective on Wednesday to help lower corporate borrowing costs while it lowered its reserve requirement by 50 basis points which banks are required to hold, beginning on September 6th.
The People’s Bank of China cut the one year lending rate to 4.6 percent from 4.85 percent and the 1 yr. deposit rate to 1.75 percent from 2.0 percent.
The new rate cut is the fifth rate cut this year and underscores how the Chinese central bank has taken steps to ease monetary policy in response to slowing economic growth.
The People’s Bank of China warned that the Chinese economy faces downward pressure but with inflation low, it is still possible to use policy tools to lower borrowing costs.
Earlier today, the Shanghai Composite Index dropped 7.63 percent after falling 8.49 percent on Monday.
European stock indexes are rallying on the news. France’s CAC 40 is up 4.46 percent.
U.S. stock futures are pointing higher with the S&P 500 aiming for a +72 (3.86 percent) move higher.