China central bank cuts rates, reserve ratio to aid stumbling economy

This is the second time in two months China has relaxed reserve requirements, cranking up support for a stuttering economy and a plunging stock market that has sent shockwaves around the globe.

China's central bank on Tuesday cut interest rates and simultaneously relaxed reserve requirements for the second time in two months on Tuesday, cranking up support for a stuttering economy and a plunging stock market that has sent shockwaves around the globe.

The People's Bank of China (PBOC) said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points (bps) to 4.6%, effective from August 26. One basis point is one-hundredth of a percentage point.

The central bank also reduced one-year benchmark deposit rates by 25 bps, it said.

At the same time, the PBOC said it was also lowering the reserve requirement ratio by 50 bps to 18.0% for most big banks. The change will be effective on September 6.

The move comes after Chinese stock indexes nosedived more than 7%, hitting their lowest levels since December, following their more than 8 percent plunge on Monday.

The central bank shocked global markets by devaluing the yuan by nearly 2% on August 11. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports.