People’s Bank of China cuts benchmark interest rates

The People’s Bank of China (PBOC) has decided to cut benchmark interest rates effective as of March 1, following the previous interest rate cut on November 22, 2014.

Accordingly, the one-year lending rate has been reduced by 0.25 percentage points to 5.35 percent, while the one-year deposit interest rate has been cut by 0.25 percentage points to 2.50 percent. In addition, the upper limit on what banks can pay customers on their deposits has been adjusted to 1.3 times the benchmark rate from the previous 1.2 times.

The PBOC said that its move did not mean a change in its moderate monetary policy. Market analysts stated that the PBOC’s interest rate cut indicates China has the confidence to stabilize its economic growth. Moreover, financing costs will be lowered, which will provide good monetary conditions for the domestic finished steel market in the coming peak season for consumption. It is thought that large-scale steel enterprises will mostly benefit from this interest rate cut, while small and medium-sized steel enterprises and steel traders are unlikely to benefit greatly. Meanwhile, inventory levels in the domestic steel market and at steelmakers have witnessed a rising trend after the Spring Festival period, and downstream demand has not seen any significant improvement. Thus, the interest rate cut is not likely to influence steel prices in the short term, and may only provide support for confidence among market participants

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