PBOC cuts will help maintain stability in the capital market

View of the headquarters and head office of the Peoples Bank of China (PBOC), Chinas central bank, in Beijing, China, 27 June 2015. [Photo/IC]

The People's Bank of China, or the central bank, introduced a targeted cut of the reserve requirement ratio, as well as the third reduction this year of the one-year deposit and lending rates, on Sunday. According to the bank, the reductions are aimed at consolidating the country's moderate rebound in economic growth and to ensure low financing costs for companies. Comments:

In fact, judging by the effects of China's monetary policy and market condition this year, it seems that the central bank's move is of more symbolic than realistic importance, and it is aimed at boosting public confidence in the domestic economy. To some extent, the latest "double cuts" indicate that monetary policy will remain easy, in a bid to support active fiscal policy and further stabilize economic growth within the year.

Southern Metropolis Daily, June 28

The recently announced cuts by the central bank are clearly aimed at maintaining stability in the Chinese capital market and boosting the country's economic growth, which was facing mounting downturn pressure in the second quarter. More importantly, the central bank is expected to adopt a flexible monetary policy to improve the country's economic structure and support weak sectors such as small and micro businesses.

Guo Tianyong, a professor at the Central University of Finance and Economics, June 27

Making the two cuts simultaneously is unusual, but they had been expected. In general, the changes indicate an easier monetary policy which will hopefully reduce financing costs and lower real interest rates. Also, the targeted reduction of the reserve requirement ratio is conducive to injecting vitality into the stock market and preventing it from crumbling away.

Xu Hongcai, an economist at the China Center for International Economic Exchanges, June 27

There may be latent dangers in the aftermath of the PBOC's cuts. First, more capital will be encouraged to enter the asset market, generating bubbles that will not benefit the real economy. Second, the Chinese economy is not isolated from the global market and the aforementioned adjustments might influence international competition and the emerging market-oriented economies.

Mei Xinyu, a researcher at the Ministry of Commerce's International Trade and Economic Cooperation Institute, June 27