China cuts interest rates for third time in six months as economy sputters

China cut interest rates for the third time in six months on Sunday in a bid to lower companies’ borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century. The People’s Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 per cent.

China’s economy is still facing relatively big downward pressure. At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average.

The People’s Bank of China

Sunday’s rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that the world’s second-largest economy is under persistent pressure from softness in both external and domestic demand. 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 per cent, a level not seen since the depths of the 2008/09 global financial crisis.

The effectiveness of the rate cut won’t be very big. The PBOC has already cut benchmark interest rate by a total of 75 basis points, but borrowing costs have only fallen marginally.

Li Qilin, an economist at Minsheng Securities

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