Arab Today, arab today china central bank cuts interest rates in surprise move
Last Updated : GMT 14:15:18
Arab Today, arab today
Arab Today, arab today

China central bank cuts interest rates in surprise move

Arab Today, arab today

Arab Today, arab today China central bank cuts interest rates in surprise move

The Shanghai World Financial Centre
Beijing - AFP

China's central bank on Friday unexpectedly cut benchmark interest rates for the first time in more than two years, as authorities seek to prop up flagging growth in the world's second-largest economy.
The cut comes after a string of disappointing data showing that the Chinese economy -- a key driver of global growth -- is struggling with stalling factory growth, soft exports and a weakening property market.
China's economy expanded 7.3 percent in the July-September quarter, down from 7.5 percent in the previous three months and the slowest since 2009 at the height of the global financial crisis.
The People's Bank of China slashed its one-year rate for deposits by 0.25 percentage point to 2.75 percent and its one-year lending rate by 0.40 percentage point to 5.6 percent, both effective Saturday, a statement said.
That marks the first rate cut since June 2012.
China has since April used a series of limited measures to underpin growth, including targeted cuts in reserve requirements -- the amount of funds banks must put aside -- and a 500 billion yuan ($81.6 billion) injection into the country's five biggest banks for re-lending.
Analysts, however, have said recent weakening economic indicators, including manufacturing and industrial output, were likely to pressure authorities to take bigger steps.
"The PBoC is forced to realise that China’s economy is slowing down significantly, deflationary risk is rising fast," ANZ economist Liu Li-Gang told AFP.
- Concerns over growth -
The decision to cut borrowing and lending costs came a day after a closely-watched private survey showed that manufacturing activity in China stagnated in November to a six-month low.
British banking giant HSBC said Thursday that its preliminary purchasing managers' index (PMI) reading came in at the 50.0 breakeven point.
It was lower than October's 50.4 and was the weakest since May's 49.4, according to the bank's data. A reading above 50 indicates expansion in the sector, a reading below 50 indicates contraction.
Mark Williams, chief Asia economist for Capital Economics, said that the main beneficiaries of the rate cut would likely be large, state-owned enterprises taking bank loans, but it is unlikely to have a significant effect on economic growth.
"The financing costs of smaller firms, which borrow from the shadow banking sector, will not be affected," he said in a note.
Shadow banking refers to a vast network of lending outside formal channels and beyond the reach of regulators, including activities by online finance platforms, credit guarantee companies and micro-credit firms.
Falling prices in China's property sector are a key issue weighing on economic growth, while some analysts have expressed concern about the overall health of the country's financial system.
Chinese President Xi Jinping acknowledged earlier this month in a speech to a meeting of Asia-Pacific business executives in Beijing that the economy faces financial risks, but expressed confidence they are manageable, describing them as "not that scary".

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