China's central bank drops its key interest rate again
BEIJING -China cut interest rates on Friday for a sixth time in a year to spur slowing economic growth.
The announcement came after growth slowed to a six-year low of 6.9 percent in the latest quarter, according to official figures, dragged down by weak global demand and an effort to reduce reliance on construction and heavy industry.
Effective Saturday, the benchmark rate on a one-year loan will fall by 0.25 percentage point to 4.35 percent from 4.6 percent now, the central bank announced. The benchmark rate for a one-year bank deposit will be reduced by the same margin to 1.5 percent.
"There still exists some downward pressure on China's economic growth," the People's Bank of China said in a statement. "We need to continue to use monetary policy tools to strengthen economic structural adjustment and create a good monetary and financial environment."
Also Friday, the central bank increased the amount of money available for lending by reducing the level of reserves banks are required to hold.
Most bank lending goes to government companies, rather than to the entrepreneurs who generate most of China's news jobs and wealth. So, the immediate impact of rate cuts is to lower financing costs for state industry.
Much of China's 5-year-old decline in economic growth is self-imposed as the ruling Communist Party tries to steer the country to a more sustainable expansion based on domestic consumption instead of exports and investment.
The unexpectedly sharp slowdown over the past year has sparked concern that growth was falling too abruptly, raising the danger of job losses and unrest. That prompted Communist leaders to start cutting interest rates last November and to launch mini-stimulus measures through higher spending on building public works.
Factory activity weakened in the latest quarter while retail sales growth accelerated in a positive sign for efforts to promote a consumer-led economy. Credit growth is picking up.
"Fears that the economy was rapidly decelerating seem to have receded," Mark Williams of Capital Economics said in a report.
Regarding what some observers say is an ad hoc monetary policy from the central bank that shows rising worries about slipping growth, Williams countered: "The key point is that we shouldn't take today's announcement as evidence that policymakers have grown more concerned about the economy. Instead, this is a controlled easing cycle that underlines how China's policymakers, unlike many of their peers elsewhere, still have room for policy maneuver."
"Admittedly, we're still waiting for clear evidence of an economic turnaround," Williams said. "Nonetheless, with more stimulus in the pipeline, we still believe the economy will look stronger soon."