The Central Bank of China have lowered the amount of cash reserves that banks are mandated to hold as well as their interest rates. Central bank officials explained that the latest move is intended to help firms in the country obtain affordable loans for their operations.

China Daily reported that the People's Bank of China (PBOC) has reduced the required reserve by at least half percent for commercial banks located in urban areas and those in rural areas who have allotted loans to agricultural businesses.

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According to Bloomberg, the recent cut was made to prevent the value of Chinese stocks from eroding further. The lowered interest rates can also help the local government obtain additional funding for their infrastructural projects.

Government-owned and foreign commercial banks that extend loans to small scale businesses have also enforced the same rate reduction. Financing companies received a three percent reduction in their rates.

At the same time, the PBOC has also lowered the rates for annual deposit and borrowing by at least 25 points. This reduction will place the interest rates for deposit at a mere 2 percent, while loan interest rate now stands at a dismal 4.85 percent.

Lowering the deposit and borrowing interest rate is not a common move by the Chinese central bank. However, industry insiders were not surprised as the financial authorities are intent in keeping the growth momentum of the country's economy.

Market Watch reported that the Chinese stock market reacted positively to the Central banks reserve ratio and interest cut. The Shanghai Composite Index's and Hong Kong Hang Seng Index's negative reaction to the news that Greece may default on its loan was somewhat lessened by the interest cuts.

PBOC research chief Lu Lei said that the recent moves are aimed at keeping the gains made by the economy this year as well as averting the danger of losing control of the financial situation.

Bank of Communications economist Lian Ping believes that further reduction in interest ratio in the future will no longer serve any useful benefit for the Chinese economy.

China is aiming for at least a seven percent growth in its economy for the current year; a very low figure as authorities struggle to maintain a tight balance between economic reforms and growth.

TagsShanghai Stock Exchange, People's Bank of China (PBOC), China Interest Rate and Reserve Ratio Cut, China Stock Exchange, Hong Kong Hang Seng Index