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Sunday 11 December 2016

China cuts interest rates to spur slowing economic growth

Published 23/10/2015 | 13:16

China has cut interest rates in an attempt to boost its slowing economy
China has cut interest rates in an attempt to boost its slowing economy

China has cut interest rates for a sixth time in a year to spur slowing growth in the world's second-largest economy.

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The central bank has also increased the amount of money available for lending by reducing the amount banks are required to hold in reserve.

The bank said the benchmark rate on one-year loans will fall by 0.25 percentage points to 4.35% effective from Saturday. The benchmark rate for one-year bank deposits will be reduced by the same margin to 1.5%.

Economic growth in the latest quarter declined to a six-year low of 6.9%, according to official data.

Growth has been dragged down by weak global demand and an effort to reduce reliance on construction and heavy industry.

"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."

Most bank lending goes to government companies, rather than to the entrepreneurs who generate most of China's new jobs and wealth. So the immediate impact of rate cuts is to lower financing costs for state industry.

Much of China's five-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.

"Admittedly, we're still waiting for clear evidence of an economic turnaround," Mr Williams said. "Nonetheless, with more stimulus in the pipeline, we still believe the economy will look stronger soon."

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