China cuts key rates for fifth time in 3 months

BEIJING: The People’s Bank of China (PBoC) slashed interest rates on Monday as the latest step in a campaign to fend off a deepening economic slowdown, though the cut, the fifth since mid-September, was smaller than what many analysts had counted on.

The Chinese central bank cut benchmark one-year lending and deposit rates by 27 basis points - to 5.31% and 2.25% respectively - a far cry from its last move slashing rates by 108 basis points at the end of November.   

Analysts said the move to bolster growth in the world’s fourth-largest economy looked timid compared to action taken by the US Federal Reserve and the Bank of Japan in cutting rates almost to zero last week.

“We would have thought that given the US action, and ... central bank action around the world, the PBoC would have been inclined to go further,” said Ken Peng, economist with Citigroup in Shanghai. “Apparently they think this will be sufficient to maintain financial stability in the near term,” he said.   

The Chinese central bank also lowered the amount of money that commercial lenders must keep on deposit with it, cutting the required reserve ratio by half a percentage point, which economists said could free up to 300 billion yuan of extra credit.

Expectations that a rate cut was just around the corner had been firmed up by bleakening activity data and a steep decline in price pressures.    The head of the IMF and some banks have said recently that growth in China could ease to around 5% next year compared to the country’s 8% target.

It expanded 11.9% last year. A series of officials have been unusually candid by Chinese government standards in declaring concern that a sharp slowdown could fuel unemployment and imperil the social stability that Beijing prizes above all else.