China's central bank cuts two key rates to boost economy

The rate cut by the Peopple's Bank of China is the latest move by authorities to boost the economy. Photo: ADEK BERRY / AFP
Source: AFP

China's central bank on Monday said it had cut two key interest rates to historic lows, in the latest move by Beijing to boost sluggish spending and kickstart the world's second-largest economy.

The cuts come just days after the country posted its slowest quarterly growth in a year and a half, underlining the deep economic woes the country faces.

Leaders are targeting annual growth of five percent this year, but that goal is being challenged by weak consumption and a prolonged and debilitating debt crisis in the colossal property sector.

The one-year Loan Prime Rate (LPR), which constitutes the benchmark for the most advantageous rates lenders can offer to businesses and households, was cut from 3.35 percent to 3.1.

The five-year LPR, the benchmark for mortgage loans, was cut from 3.85 to 3.6.

Both rates were last reduced in July and are sitting at all-time lows.

Data showed Friday the economy grew 4.6 percent in the third quarter, its slowest rate in a year and a half.

Authorities acknowledged a "complicated and severe external environment... as well as new problems of domestic economic development".

Beijing has said it has "full confidence" in achieving its annual growth goal, but economists say more direct fiscal stimulus is needed to revive activity and restore business confidence.

The disappointing data came after weeks of announcements and news conferences about an eagerly awaited stimulus plan, though investors say they are still waiting to see more details.

The country's top banks on Friday cut interest rates on yuan deposits for the second time this year in another potential boost to spending.

Central bank chief Pan Gongsheng also on Friday said that authorities were considering a further cut to the amount commercial lenders must hold in reserve before the end of the year.

Months of sluggish spending has raised fears that China will dip back into deflation after it ended a months-long stretch of falling prices early this year.

Zhang Zhiwei, President and Chief Economist of Pinpoint Asset Management, said Monday's rate cut was "an encouraging sign".

"The monetary policy has clearly shifted to a more supportive stance since the press conference on September 24. The real interest rate in China is too high," he said.

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Source: AFP