A fluttering Chinese flag casts its shadow on the headquarters of the People’s Bank of China in central Beijing November 24, 2014. The bank announced its third round of interest cuts in six months on Sunday. Photo by Kim Kyung-Hoon/Reuters
In an effort to counteract an ongoing economic slowdown, China’s central bank cut interest rates for the third time in six months.
The People’s Bank of China announced Sunday that it will lower its one-year lending rate to 5.1 percent and its one-year deposit rate to 2.25 percent. The rate changes will take effect Monday.
Inflation stayed subdued in April and both imports and exports slid, casting doubt on whether the world’s second-largest economy will meet Premier Li Keqiang’s 2015 growth target of 7 percent, and raising expectations of further central bank action
“The economy requires substantial stimulus to get back on its feet,” Frederic Neumann, co-head of Asian economics research in Hong Kong at HSBC Holdings Plc told Bloomberg Business.
“But monetary easing on its own may not do the trick: China also requires a fiscal kick to steady demand,” Neumann said.
China’s rate reduction builds on its other recent efforts to increase support for the country’s slowing economy. Last year’s growth rate of 7.4 percent — down 0.3 percent from 2013 — was China’s lowest in 24 years. Growth this year is expected to be even lower.
China’s economy slowdown is a function of myriad factors including a sluggish global economy, a cooling real estate market, decreased competitiveness, high debt levels and the near-impossibility of indefinitely maintaining the dazzling growth the country has seen over the last quarter century.
Last week, the International Monetary Fund predicted China’s growth rate would stabilize around 6 percent by 2017, the BBC reported.
Many analysts expect further rate cuts in the coming months, since recent cuts have been slow to affect
Li Huiyong, an economist at Shenwan Hongyuan Securities, told the BBC: “This won’t be the last cut. “The rate could be lowered to 2 percent at least, and we expect the economy to gradually stabilize in the coming two quarters.”
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