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Credit Insights

Markets Pressure Central Banks for Further Easing

European Central Bank intimates additional easing ahead.

Weak global economic performance and significant market declines have renewed investor pressure for global central banks to further ease monetary policy. Early last week, China released a report outlining its fourth-quarter and full-year 2015 gross domestic product. The annualized GDP growth rate in the fourth quarter registered 6.8%, the slowest since the 2008-09 global credit crisis. The markets reacted positively to the news as investors are betting that China will ease its monetary policy further in an attempt to stimulate economic activity.

The People's Bank of China last cut each of its benchmark lending and deposit rates by 25 basis points in October 2015, following the release of third-quarter GDP. At that time, the PBOC also reduced its reserve requirement ratio (the amount of capital that banks need to reserve against loans) by 50 basis points. These actions piled on top of the other easing steps the PBOC has taken over the past year. The reductions were the sixth time since November 2014 that the PBOC has lowered its benchmark lending rate and the fourth time it has lowered the reserve requirement ratio. Yet despite these actions, the sequential growth rate of China's economy has consistently slowed.