Central bank: China to cut interest rates by 0.25%

GMT 01:04 2015 Sunday ,01 March

Arab Today, arab today Central bank: China to cut interest rates by 0.25%

A Chinese migrant worker passes
Beijing - AFP

China's central bank on Saturday announced that it will cut the benchmark deposit and loan interest rates by 25 basis points, as authorities seek to prop up flagging growth in the world's second-largest economy.
The move, which goes into effect Sunday and marks the second cut in four months, was largely expected amid a raft of weakening economic indicators, analysts said.
It comes days ahead of the opening of the annual meeting of China's rubber-stamp legislature, the National People's Congress, at which Premier Li Keqiang is expected to deliver an address on the state of the country's economy.
Last month, Beijing announced that China's gross domestic product rose an annual 7.4 percent in 2014 -- a 24-year low.
In a statement posted on its website, the People's Bank of China (PBoC) said it would slash its one-year rate for deposits to 2.5 percent and its one-year lending rate to 5.35 percent.
The bank pointed to "historically low inflation" as among the factors behind the move.
China's inflation plunged to a more than five-year low of 0.8 percent in January, fuelling fears that the Asian giant is on the brink of a deflationary spiral.
"The focus of the interest rate adjustment is to maintain real rate levels that are appropriate given the trends in economic growth, prices and employment," the bank said in its statement.
"It does not represent a change in the orientation of our monetary policy," it added.
China's leaders are trying to pull off a managed slowdown of the Asian giant to make growth more sustainable and led by consumer spending as in other major economies.
The slowdown last year prompted some intervention by authorities to establish a floor on growth even as they tout a retooling of the country's economic model that is expected to result in further slowdowns in the years ahead.
Li has said publicly that weaker GDP growth is no problem so long as its quality remains high and job creation remains resilient.
Stalling factory growth, soft exports and a weakening property market are among the factors adding to the pressure on authorities.
- 'Help for larger firms' -
The last round of interest cuts came in November, when the bank slashed deposit rates by 25 basis points and the one-year lending rate by 40 basis points.
That move was followed this month by a step by the PBoC towards further monetary easing by cutting the percentage of funds banks must hold in reserve, known as the reserve requirement ratio.
The across-the-board cut was the first such slash in nearly three years.
Mark Williams, chief Asia economist for Capital Economics, cautioned that the latest rate cut "will mainly help larger firms".
"The reduction in financing costs will help many indebted firms but it is important not to read too much into today's move," he said.
"The binding constraints on bank lending are the official lending quotas. As a result, rate cuts do not in themselves do anything to boost lending," he added.
A survey this month showed China's manufacturing activity contracting for the first time in more than two years.
The Purchasing Managers' Index (PMI) released by the government's National Bureau of Statistics came in at 49.8 in January. A figure above 50 signals expansion, while anything below indicates contraction.
Data on February's figure is expected to be released on Sunday.
China's official Xinhua news agency said that the aim of the rate cut "is to lower social financing costs and provide a modest monetary environment to facilitate economic restucturing".
But Williams cast doubt on the claim that the move would result in lower interest rates generally.
"There is no clear transmission from bank deposit rates to market interest rates," he said. "If we are right, banks' net interest margins will be squeezed."
He added that the central bank is likely to make one more cut to benchmark rates before mid-year.

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