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China announces surprise rate cuts amid economic downshift

07-06-2012 10:12 BJT

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The PBOC caught markets by surprise, cutting interest rates for the second time in less than a month. Effective on Friday, the one-year deposit rate will go down 25 basis points, and the one-year lending rate will be cut by 31 basis points.

This follows on the back of a 25 basis point cut last month. In line with recent efforts to liberalise its interest rate regime, the Chinese central bank is also allowing more flexibility to commercial lenders. This is the latest move by policymakers here, to bolster growth in the world’s second-largest economy.

The second interest rate cut in less than a month. It’s an announcement markets have been waiting for, but not so soon.

The People’s Bank of China is lowering its one-year benchmark deposit rate by 25 basis points, effective from Friday. While the lending rate is down by an even larger margin, 31 basis points.

This comes at a time when many are concerned with slowing economic momentum in China - an engine of global growth. It also comes just a few days before China releases inflation data for June and GDP figures for the second quarter. Many expect last month’s CPI to fall below three percent. China’s economy from April to June is forecast to grow by less than eight percent.

Analysts say the rate cut is good news, not only for boosting investor sentiment in the short term, but also for the real economy.

Meanwhile, the central bank will allow commercial banks to set lending rates to as low as70 percent of the benchmark rate, from 80 percent previously. Analysts say the reform marks another step forward in liberalizing interest rates and stimulate bank lending.

 

Editor:Zhang Rui |Source: CNTV.CN

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