The People's Bank of China (PBOC) lowered the 1-year lending and deposit rates by -25 bps, effective June 8. This first rate cut since December 2008 came in with great surprise as the government adopted 'asymmetric' rate change. Slowdown in Chinese economic growth and deterioration in the global environment in recent months have triggered speculations of a reduction in lending rate for some time. However, a cut also in the deposit rate was rather unexpected. Moreover, the PBOC's raise of the ceiling on the deposit rate to 110% from 100% and the lowering of the floor of the lending rate to 80% from 90% have actually reduced the lending rate by more than it announced and increased the deposit rate. We believe the rate cut is generally a positive to the market and marks a small step to interest rate liberalization in China.
Source : actionforex.com
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