China central bank says liberalising rates key element of financial reform

A Chinese national flag flutters outside the headquarters of the People's Bank of China.
A Chinese national flag flutters outside the headquarters of the People's Bank of China. PHOTO: REUTERS

BEIJING (REUTERS) - Liberalising China's interest rates is a key element of financial reform, the country's central bank said on Monday (Oct 26), adding that cutting borrowing costs and lowering the amount of cash banks must keep as reserves do not equate to quantitative easing.

The comments come after the central bank cut interest rates on Friday (Oct 23) for the sixth time in less than a year, and again lowered the reserve requirement ratio (RRR) for banks in a bid to jump start growth in China's stuttering economy.

Lowering interest rates and cutting RRR are "normal monetary policy" practice, the bank said in a statement published on its website on Monday.

The PBOC cut the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent while the one-year benchmark deposit rate was lowered by 25 basis points to 1.50 per cent. The RRR was cut by 50 basis points for all banks, taking the ratio to 17.5 per cent for the biggest lenders.

The bank also said on Friday it was freeing the interest rate market by scrapping a ceiling on deposit rates.