For the fourth time since November, China's central bank has slashed lending rates. It has also cut the amount of cash that some banks should be having as reserves. Steps are being taken to support China's economy that is passing through a tough time.

The People's Bank of China (PBOC) is reducing the one-year benchmark bank lending rate by 25 basis points to 4.85%. It is also reduced the one-year benchmark deposit rate by25 basis points to 2%.

The bank has also reduced its reserve requirement ratio for banks by 50 basis points. For finance companies, the bank has reduced reserve requirement by 300 basis points. The bank said that by lowering the rate, funding and cost pressure on state-owned enterprises will be reduced.

The announcement indicates that money is not flowing in some of the most-needed sectors of the economy. The nation is witnessing high borrowing costs that could lead to bankruptcies and job cuts.

Recent relaxation would also help investors, as they have witnessed a 20% decline in the nation's stock markets over the last two weeks. Though rate cuts have been made, the real cost of borrowing in China continues to remain high. Factors responsible for the same could be declining inflation and also because banks do not have much interest in passing lower rates onto their customers.

As mentioned above, it is not the first time when the central bank has made such cuts. It is said that the central bank will, "continue to implement prudent monetary policy, use various policy tools to strengthen and improve marco- prudential management, optimise policy combinations and create neutral and appropriate monetary and financial environments for economic adjustments and upgrading".