China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown.
The one-year lending rate is to drop to 4.35 percent from 4.6 percent effective today, the People’s Bank of China (PBOC) said on its Web site yesterday, while the one-year deposit rate is to fall to 1.5 percent from 1.75 percent.
Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis-point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling, a further step in the liberalization of interest rates.
The expanded monetary easing underscores the government’s determination to meet its growth target for this year of about 7 percent in the face of deflationary pressures, overcapacity and tepid global demand.
China’s sixth rate cut since November last year comes as the European Central Bank’s president signaled more policy easing amid expectations for additional stimulus from the Bank of Japan.
“Clearly, the People’s Bank of China is on a mission to ease policy and has been for a year,” said George Magnus, a senior independent economic adviser to UBS Group AG in London. “With the economy losing momentum, deflation embedded in the corporate sector and rebalancing making limited headway, the central bank is being directed to ease monetary policy further. And of course, this isn’t the end of the road yet.”
China’s GDP rose 6.9 percent in the three months through last month from a year earlier, according to the Chinese National Bureau of Statistics. An outsized contribution from financial services, boosted by a surge in share trading from the year earlier period, helped prop up the GDP reading, which was the slowest quarterly expansion since 2009.
With consumer inflation at about half the government’s target and a protracted slump in producer prices, policymakers had room for additional easing.
“Chinese officials are stepping on the gas,” Hong Kong-based HSBC Holdings PLC Asia economics research cohead Frederic Neumann said.
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