China surprises with interest rate cut to spur growth

November 21, 2014 05:18 pm | Updated 05:33 pm IST - BEIJING

A pedestrian bridge near China Central Television (CCTV) building in Beijing. China's economy faces increasing downward pressure in 2015.

A pedestrian bridge near China Central Television (CCTV) building in Beijing. China's economy faces increasing downward pressure in 2015.

China cut interest rates unexpectedly on Friday, stepping up a campaign to prop up growth in the world’s second-largest economy as it heads towards its slowest growth in nearly a quarter century.

The cut — the first such move in over two years — came as factory growth has stalled and the property market, long a pillar of growth, has remained weak, dragging on broader activity and curbing demand for everything from furniture to cement and steel.

“It’s a surprise, another Friday night special," said Mark Williams, Chief Asia Economist with Capital Economics in London.

"It may not have a major impact on GDP growth — that depends on if policymakers also allow the rate of credit growth to pick up."

The People’s Bank of China said it was cutting one-year benchmark lending rates by 40 basis points to 5.6 per cent. It lowered one-year benchmark deposit rates by less — just 25 basis points. The changes take effect from Saturday.

The central bank also took a step to free up deposit rates, allowing banks to pay depositors 1.2 times the benchmark level, up from 1.1 times previously.

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