China cuts interest rates for third time in six months, more to come?

BEIJING - With the economy facing increasing downward pressure, China’s central bank, the  People’s Bank of China, has lowered its benchmark one-year lending rate by 25 basis points to 5.1% effective today. The benchmark deposit rate will be cut by the same amount to 2.25%.

The China Daily reported: “The interest rate cuts are to be accompanied by deposit rate liberalisation. The upper limit of the floating band of deposit rates for financial institutions is being increased to 1.5 times the benchmark from the previous 1.3%, a move towards the completely free rate that has been promised before the end of the year by central bank’s Governor.”

According to PBoC, the purpose of the repeated rate cuts is to “drive down financing costs” while supporting development of the real economy: “Currently,” the statement reads, “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.”

HSBC commented that further rate cuts are likely. ANZ is tipping a further cut of 25 basis points in the third quarter. www.webershandwick.cn (ATI).