China is desperate to prop up the debt-fueled, Ponzi scheme economy. Since it is anyone’s guess if the U.S. and China will reach a trade agreement before the end of the year, Beijing is taking the necessary measures to spur growth and encourage positive investor sentiment.
The People’s Bank of China (PBOC) announced that it has cut its short-term funding interest rate from 2.55 percent to 2.50 percent. The central bank projects that the cut in the seven-day repo rate will add more than $25 billion in cash through the open market operations.
In recent weeks, the PBOC has instituted a whole bunch of monetary policy moves, including a reduction in the one-year medium-term lending facilities from 3.3 percent to 3.25 percent.
Moving forward, analysts anticipate a cut to the new benchmark loan prime rate (LPR): the one-year fixed rate is 4.2 percent and the five-year is 4.85 percent. They also expect the PBOC to cut the reserve requirement ratio (RRR), the number of reserves that banks are required to hold. This has been cut several times already.
Beijing says that these moves are important to combat the growing threat of inflation. But the move will also ensure that parts of the economy that are starving for credit will get an injection.
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