China's central bank cut interest rates for the second time in a matter of weeks on Thursday, stepping up efforts to bolster an economy that last quarter probably suffered its weakest growth since the global financial crisis. The People's Bank of China (PBoC) also gave banks more leeway to set lending rates in a move analysts said was aimed at stimulating borrowing by creating a more competitive landscape.
China cut its benchmark rates as both the Bank of England and the European Central Bank eased monetary policy, raising speculation global policymakers had co-ordinated their action to lift a world economy buffetted by Europe's debt crisis. Underlining Beijing's unease, the central bank's last rate cut was just one month ago.
---- Cuts 1-year lending rate to 6pc, deposit to 3percent "It is a surprise that they are moving so quickly. It shows that policymakers' concerns about the global economy have only grown," said Mark Williams, an economist at Capital Economics in London.
"The rumour is that bank lending was fairly weak last month. The rate cut suggests those rumours could be true," he said. The benchmark one-year lending rate was cut 31 basis points to 6 percent and the one-year deposit rate was reduced by 25 basis points to 3 percent, the PBoC said in a statement on its website.
It lowered the floor for lending rates to 70 percent of benchmark rates from 80 percent previously. That means that on the one-year basis, bank lending rates can be as low as 4.2 percent. Beijing's latest cuts, effective Friday, come just four weeks after its previous rate cut announced on June 7, and fed concerns that a deluge of economic data from China next week would show the economy in worse shape than expected.
The world's second-biggest economy is widely forecast to grow at its weakest pace in 13 years this year at around 8 percent. The latest rate cut underlines the risk that the downturn in growth may be longer and deeper than previously thought, some analysts said. "The rate cut was earlier than expected. We reckon relatively weak data may have prompted the move," said Guo Lei, an analyst at Zheshang Securities in Shanghai. "In addition, this rate cut implied some sort of global coordination."
The PBoC announcement came after the close of Chinese markets. European shares and commodities rose though after the flurry of central bank announcements to tackle the global slowdown. China has already reduced the RRR, or the amount of cash that banks set aside as reserves, by 150 basis points in three moves since November to 20 percent, freeing up an estimated 1.2 trillion yuan ($190 billion) for new lending.
Analysts polled by Reuters in May had forecast Beijing would further lower the ratio to 19 percent by the end of the year. A Reuters poll published on Thursday showed economists expect the data next week to show China's economy expanded in the second quarter by 7.6 percent from a year earlier, its weakest performance since the 2008-09 financial crisis. That would be down from 8.1 percent in the first quarter for the sixth straight quarter of slowing growth, and would be just a whisker above Beijing's 2012 growth target of 7.5 percent. Analysts also forecast Chinese banks lent 910 billion yuan ($143.36 billion) in June, although local media have said lending was likely far lower, citing unnamed sources.
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