CHINA TOPIX

11/22/2024 02:47:08 am

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China Lowers Interest Rates to Spur Growth, Reverse Slowdown

Bank of China

(Photo : Reuters) A resident looks at a brochure of yuan banknotes at a branch of People's Bank of ChinaA resident looks at a brochure of yuan banknotes at a branch of People's Bank of China. China unexpectedly cut interest rates on Friday to stimulate growth.

In a surprise move, China's central bank cut interest rates for the first time in two years in an attempt to stimulate growth and counteract the economy's current slowdown.

"The Chinese economy is running within the proper range and positive signs have emerged in economic restructuring," said the central bank. "However, high financing costs and obstructions still remain prominent problems for the real economy."

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The People's Bank of China reduced the benchmark rate for one-year deposits by 25 basis points, and cut the one-year lending rate by 40 basis points. The last time China's adjusted its benchmark rates was in July of 2012.

As a result of the rate reduction, one-year deposit rate will be at 2.75 percent, while one-year lending will stand at 5.6 percent.

The goal of the central bank is to lower market interest rates and private financing costs to help companies that are facing problems, the Bank of China said in a separate statement.

The decision comes amid a flurry of recent economic indicators showing that China's economy, which has been red-hot for so many years, is experiencing the early stages of a slowdown.

Last week, the China reported that investment growth fell to a 13-year low, and that both consumer and producer prices have hit their lowest level in years. And just the week before that, investment bank UBS issues a report that China's GDP growth will slow down over the next two years as a result of the real estate downturn.

The Chinese economy reported GDP growth of 7.3 percent for the third quarter of 2014, down from 7.5 percent during the second quarter of the year.

"Reducing high financing costs for enterprises, small and micro-firms in particular, is of great importance to stabilizing economic growth, job creation and the benefit of the people," said the People's Bank of China.

The Bank also said although efforts to manage high financing costs since July have been working in some regions, many companies still face operational difficulties, particularly smaller firms, which are more vulnerable to these costs.

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