China's central bank cuts key lending rates, reserve ratio to support economy

The People's bank of China has cut key lending rates for banks in a bid to support the economy, and boost investor confidence in the wake of a riot in the country's stock markets. 

Chinese stock markets closed down 7% on Tuesday after falling nearly 8% in Monday's trade. The Chinese markets have eroded nearly $4 trillion in market cap since its high in June. The fall in the Chinese markets have triggered a massive sell-off in around the world, with the BSE Sensex registering its biggest intraday fall for the first time since October 2009, and the third largest in the history of the benchmark index.

Chinese markets remained under pressure as investors' confidence remained weak in the absence of a state intervention.

The PBOC on Tuesday cut deposit rates by 25bps to 1.75%, effective August 26. It also removed the ceiling on fixed deposits. 

The central bank cut reserve ratio by 50bps for most big banks. 

It however, cut an additional 50bps reserve ratio for rural commercial banks and rural corporation banks, and a 300bps additional cut in the reserve ratio for financial and auto leasing companies. 

A cut in the reserve ratio will free up liquidity, which has been waning in the wake of forex fluctuations.