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China cuts interest rates for third time since November as economy sputters

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May 10
7:13 AM 2015

China's central bank cut its benchmark interest rate on Sunday for the third time since November, as economic growth cools to levels not seen since the global financial crisis.

The People's Bank of China (PBOC) lowered its benchmark lending rate by 25 basis points (bps) to 5.1 percent, and its

one-year benchmark deposit rates by the same amount to 2.25 percent, adding that the reductions would be effective from May 11.

The central bank said in a statement on its website that the move would support the healthy development of the economy.

Economists had said it was not a matter of if, but when China eased policy again after economic growth in the first quarter cooled to 7 percent, the slowest pace since 2009.

Some market watchers had even said the central bank was risking falling behind the curve in responding to rapidly deteriorating conditions.

Initial indicators and industry surveys for April released over the last few weeks had pointed to a further loss of momentum heading into the second quarter.

"Currently, the pace of domestic economic restructuring is quickening and the fluctuation of external demand is relatively big. China's economy is still facing relatively big downward pressure," the central bank said.

Liquidity in the banking system is generally adequate and market interest rates are falling, providing a good window to open up the upper limit for deposit rates, it said.

The central bank has now cut interest rates and relaxed banks' reserve requirements five times in six months, and many economists expect more easing measures over the course of the year as the world's second-largest economy is weighed down by a weak property market and slackening growth in manufacturing and investment.

"This is not a surprise. The consumer inflation reading for April was lower than expected and employment faces downward pressures," said Lin Hu, an economist at Guosen Securities in Beijing.

"But the effectiveness of the rate cut won't be very big, it may (only) help stabilize expectations. Fiscal policy should be stepped up and there will be further monetary policy easing if economic data continues to underwhelm. We expect the worst could be over after the second quarter and growth may stabilize in the third or fourth quarters as the property sector recovers."

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