Bonds, Currencies, Emerging Markets, Stocks

China’s Central Bank Cuts Interest Rates On Special Lending Facilities

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

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 the interest rates on its short-term lending facility (SLF) for its local branches, Reuters reported on Wednesday, citing sources familiar with the matter.

According to Reuters, overnight lending rates will be cut to 4.5 percent from 5 percent and seven-day lending rates will be cut to 5.5 percent from 7 percent.

The move by China’s Central Bank comes as the nation’s economic growth continues to cool.

In 2014, China’s economic growth expanded by 7.4 percent, its slowest rate in 24 years.

According to policymakers, China is set to unveil its official economic growth target of 7 percent for 2015 at its annual meeting of parliament, the National People’s Congress, that starts on March 5 and generally lasts about 10 days.

As China adjusts to a “new normal” of slower but more sustainable growth, a 7 percent economic growth target is seen as a floor, or the minimum growth that the nation needs in order to fend off deflation and to keep employment strong enough so that it can push on with key reforms.

China must guarantee a “bottom line” of 6.5 percent annual economic growth for its 13th five-year-plan, the China Securities Journal quoted the director of China’s National Development and Reform Commission (NDRC) Department of Planning, Xu Lin as saying.

U.S. think-tank Stratfor recently said in a report:

China has completed a high-growth cycle as a low-wage country and has entered a new phase that is the “new normal”. This phase includes “much slower growth and an increasingly powerful dictatorship” to contain the divergent forces created by slow growth. China will continue to be a major economic force but will not be the dynamic engine of global growth it once was.The U.S. is expected to be the major economic, political, and military power in the world “but will be less engaged than in the past.”

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 now surpasses the traditional Asian powerhouse of China.

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