China cuts interest rates to boost economy

China stock market slump: political pressure mountsHow China’s sharemarket fall affects you

China’s central bank has cut interest rates for the fifth time since November, in a move to cushion steep losses in the sharemarket that have deepened fears of a worsening economic slowdown.

The People’s Bank of China also lowered the amount of cash banks must set aside, known as the reserve requirement ratio.

The one-year lending rate will drop by 25 basis points to 4.6 per cent, effective Wednesday, the bank said in a statement on Tuesday evening.

The one-year deposit rate will fall by 25 basis points to 1.75 per cent.

The acceleration of monetary easing underscores the determination of policymakers to meet Premier Li Keqiang’s 2015 growth goal of about 7 per cent.

The risk of capital outflows and tighter liquidity after China devalued its currency on August 11, weaker-than-forecast economic readings and renewed stockmarket weakness added pressure for further stimulus.

“The economy is still under immense downward pressure,” Yao Wei, a Paris-based China economist at Societe Generale SA, wrote before the move.

“Fiscal policy has to step up, and monetary policy is likely to play an assisting role by providing targeted liquidity.”

Two weeks ago the central bank announced it would allow markets greater say in setting the currency’s level, which spurred the biggest devaluation in two decades and now threatens to trigger an outflow of capital. The bank has intervened to stem losses since.

Deflation risks, over-capacity and debt hang over an economy that is forecast for its slowest expansion since 1990. China’s industrial production, investment and retail data all trailed analysts’ estimates in July.

Central bank governor Zhou Xiaochuan had already lowered the required reserve ratio twice this year before Tuesday’s decision, with an additional move targeted to certain banks. Officials are also acting to boost lending and are expanding lending capacity at the country’s policy banks.

Bloomberg’s monthly gross domestic product tracker suggests the economy expanded in July at a pace of 6.6 per cent from a year earlier.

with Bloomberg