The decision to simultaneously cut China's interest rates and reserve requirements for banks is a "forceful easing move" that could stabilize the market and shore up growth.
The last time the central bank made such a concerted easing effort was back in late 2008 at the height of the global financial crisis.
The People's Bank of China (PBOC) announced Saturday that one-year lending and deposit rates would be cut by 25 basis points (bps) to 4.85 percent and 2 percent respectively.
The reserve requirement ratio (RRR), the amount of cash banks are required to hold, has been cut by 50 bps for commercial banks serving rural areas, agriculture and small businesses. The RRR for finance companies, or non-bank financial institutions, is lowered by 300 bps from Sunday, to "support the real economy and promote restructuring" according to the PBOC.
ECONOMIC RECOVERY NEEDS CONSOLIDATION
It is the third RRR cut in five months, and the fourth round of interest rate cuts in seven months.
"The combined action is a forceful move, sending a clear signal to the market that authorities are actively responding to the financial situation," said Zeng Gang of the Chinese Academy of Social Sciences.
China faces a tough task to stabilize growth and needs to continue to use the monetary policy flexibly to lower borrowing costs and boost the economy through restructuring, the PBOC said in a press release.
The double cut could consolidate the recent economic recovery, which is still fraught with uncertainties, said Lian Ping, chief economist at the Bank of Communications, citing a slight rebound in real-estate investment and brisk housing sales in May.
"Economic drivers are still relatively weak and more liquidity through policy easing is necessary. Market sentiment may improve, which is important for the economy, in the second half of the year," said Wang Jun, a researcher at China Center for International Economic Exchanges.
China will release its Q2 GDP figure on July 15.
