China's central bank cut benchmark interest rates for the second time in three months as disinflation gives room to step up support for the nation's slowing economy.
The one-year deposit rate will be lowered by 25 basis points to 2.5% and the one-year lending rate will also drop by a quarter percentage point to 5.35% on March 1, the Beijing-based People's Bank of China said on its website late Saturday.
The move reflects deepening concern over an economy squeezed by a property slump, tighter controls over local government debt and rising capital outflows. By adding rate cuts to a reduction in the cash banks must set aside as reserves, the PBOC is intensifying its easing measures along with more than a dozen global counterparts this year as plunging commodity prices provide scope to support growth, according to (Xinhua) news agency.
"A rate cut was urgently needed," said Wang Tao, the chief China economist at UBS Group AG in Hong Kong, who predicted one or two more reductions this year. "The debt burden is heavy, and the PBOC has to act to keep the financial market stable." The PBOC also increased the deposit-rate ceiling to 1.3 times from 1.2, meaning banks can pay a larger margin over the benchmark. That eases the financial repression that has seen China's savers effectively subsidize debt-funded investment.
The monetary authority lowered interest rates for the first time in two years in November.