Date
22 October 2017
China's economic growth has decelerated to the slowest pace since the global financial crisis. Photo: Reuters
China's economic growth has decelerated to the slowest pace since the global financial crisis. Photo: Reuters

China cuts interest rates again as economy falters

China has cut interest rates for the third time in six months in an attempt to lower borrowing costs for companies and revive a sputtering economy, Reuters reported.

Analysts welcomed the widely expected move but predicted policymakers would relax bank reserve requirements and cut rates again in the coming months to counter the headwinds facing the world’s second-largest economy.

The People’s Bank of China (PBoC) said on its website Sunday it was lowering its benchmark, one-year lending rate by 25 basis points (0.25 percentage point) to 5.1 percent from Monday.

It cut the benchmark deposit rate by the same amount, to 2.25 percent.

“China’s economy is still facing relatively big downward pressure,” the PBoC said.

“At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average.” 

The rate cuts came just days after weaker-than-expected April trade and inflation data, underlining the persistent pressure on China’s economy from soft demand at home and abroad.

The PBoC said in a statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms.

As part of these reforms, it raised the ceiling for deposit rates Sunday to 1.5 times the benchmark level, the biggest increase in the ceiling since the central bank began to liberalize the interest rate system in 2012.

Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds, the report said.

“The effectiveness of the rate cut won’t be very big,” Li Qilin, an economist at Minsheng Securities, was quoted as saying.

“The PBoC has already cut the benchmark interest rate by a total of 65 basis points, but borrowing costs have only fallen marginally.”

– Contact us at english@hkej.com

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