China Cuts Interest Rates For Third Time In Six Months As Economy Continues To Slow

The People’s Bank of China (PBOC) in Beijing, capital of China. File photo courtesy of PBOC.

China’s Central Bank, the People’s Bank of China (PBOC), has cut interest rates for the third time in six months on Sunday as it looks to spur its slowing economy which is poised for the slowest annual rate of expansion in 25 years.

The PBOC cut its benchmark one-year lending rate by 0.25 percentage points to 5.1 percent, and cut its one-year deposit rate by the same amount to 2.25 percent, effective Monday, according to a statement on its official website http://www.pbc.gov.cn.

“China’s economy is still facing relatively big downward pressure,” the PBOC said. “The overall inflation level is low, the real interest-rate level is above the historical average, for which there was room to use the interest-rate tool.”

The PBOC’s move on Sunday comes just days after China announced weaker-than-expected April trade and inflation data, highlighting the persistent pressure that China’s economy is facing from soft demand at home and abroad, and underscores the challenge to achieve Premier Li Keqiang’s 2015 growth target of “about 7 percent“.

“The economy requires substantial stimulus to get back on its feet,” Frederic Neumann, the co-head of Asian economics research at HSBC, told Bloomberg in an interview. “But monetary easing on its own may not do the trick: China also requires a fiscal kick to steady demand.”

“The PBOC wants to avoid exponential share price gains but wants to support growth, so easing after pull backs in the share market makes sense,” Shane Oliver, chief economist at AMP Capital Investors, told Bloomberg in an interview. “It confirms that bad news on the economy will be good news for shares via monetary easing.”

On Friday, the PBOC released its latest monetary policy report, in which it said it will walk a fine line in its policy operations to avoid excessive easing as rising debt endangers the nation’s economic expansion.

“It is happening less as stimulus and more to offset the tightening going on via deflation in factory prices and the lowflation in consumer prices,” George Magnus, senior independent economic adviser at UBS, told Bloomberg in an interview. “There’s more coming.”

China’s Gross domestic product (GDP) in the first quarter (Q1) of 2015 rose 7 percent from a year earlier, the nation’s slowest quarterly expansion since early in 2009, when it was still feeling the impact from of the 2007–2008 financial crisis.

In February, India revised the way that it calculates its gross domestic product (GDP) and now – based on the new calculated data – the nation’s economic growth surpasses the traditional Asian powerhouse of China.