China cuts interest rates in surprise move to prop up economy

BEIJING — The Chinese central bank yesterday announced surprise cuts to interest rates, the first time in more than two years, in the clearest sign yet that policymakers are growing increasingly concerned over the pace of the slowdown in the world’s second-largest economy.

The central bank, the People’s Bank of China, said last night it would lower its benchmark one-year deposit rate by 0.25 percentage point to 2.75 per cent and reduce the one-year lending rate by 0.4 percentage point to 5.6 per cent.

At the same time, it would give China’s banks more leeway in determining how much interest they pay on deposits, allowing them to pay as much as 120 per cent of the benchmark rate, up from 110 per cent previously.

The changes take effect today.

Investors cheered the news. In late European trading, London’s FTSE stock index was up 1.3 per cent, Germany’s DAX rose 2.1 per cent and France’s CAC jumped 2.5 per cent. In New York, the Dow Jones Industrial Average rose 1 per cent about 10 minutes after the opening bell.

Oil prices jumped, with Brent crude gaining as much as US$2.28 to US$81.61 a barrel.

Despite numerous signs that growth has been slowing, China’s leaders have for months refrained from introducing any broad-based stimulus measures as they attempted to push through a package of ambitious financial overhauls announced by President Xi Jinping in November last year.

The overarching message from Beijing has been that China is willing to tolerate slower growth to make way for more sustainable development.

Last night’s rate cuts appeared to show that the pace of the country’s economic deceleration has become uncomfortably fast for its leaders. However, the central bank was quick to say that the cuts, the first since July 2012, did not mean that monetary policy would change direction in a fundamental way or that more aggressive economic stimulus measures were on the cards.

Official data released last month showed Chinese gross domestic product had expanded 7.3 per cent in the third quarter, compared with the same period last year, the slowest quarterly pace since the depths of the financial crisis in 2009. AGENCIES