After seeing the Shanghai Composite wipe out over a $1 trillion of value in less than a week, the People’s Bank of China announced that it would cut interest rates as well as the reserve requirement ratio for selected banks.
In a statement released last night, the PBoC said that they will slash the one-year lending rate to 4.85% and cut the one-year deposit rate to 2%, a 25 basis point reduction for both rates and a record low for the benchmark lending rate. The reserve requirement ratio for banks working with farmers and small businesses meanwhile, will be trimmed by 50 basis points.
The last time the bank cut all three measures in a single day was during the financial crisis in 2008, though the magnitude of this year’s tri-pronged reduction was greater than expected, drawing parallels to Alan Greenspan’s response to Black Monday way back in October 1987.
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