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Economy

China cuts interest rates to shore up its economy

BEIJING -- China's central bank on Saturday evening cut both its benchmark one-year lending rate and a one-year deposit rate by 0.25 percentage point to 5.35% and 2.5%, respectively, another round of interest rate cuts in about three months since November last year.

     Both cuts take effect on Sunday. The move is aimed at helping to lower Chinese companies' borrowing costs and propping up the slowing Chinese economy amid sluggish price growth.

     The People's Bank of China said in a statement that the interest rate cuts will help further reduce borrowing costs for domestic companies, adding that this doesn't mean a change in the central bank's prudent monetary policy stance. It stresses that it has just fine-tuned its policy in a bid to stabilize the economy.

     The move comes after China's consumer price index grew merely 0.8% on the year in January, falling below 1% for the first time in five years and two months. Moreover, China's wholesale price index has continued to drop for 35 months straight from the previous year, raising concerns over deflationary risks.

     Last November, the central bank cut the lending rate by 0.4 percentage point and the deposit rate by 0.25 percentage point for the first time in two years and four months. In early February, the bank also lowered banks' reserve requirement ratio, the amount of cash reserves commercial banks are required to hold.

     Moreover, the Chinese government on Feb. 25 decided to widen tax break for more small businesses. These developments indicate that Beijing has implemented a string of small fiscal and financial measures to shore up China's slowing economic growth.

     The central bank also said on Saturday it will give more discretion to banks to adjust their own deposit rates, yet another step to further liberalize the interest rates. Banks can now offer customers a rate up to 1.3 times higher than the official deposit rate, up from 1.2 times.

     The National People's Congress -- China's legislature -- will kick off its annual meetings on Thursday and the Chinese government will be unable to make any policies for about 10 days while the NPC is in progress. Therefore, the central government has cut the interest rates to show its resolve to prop up the economy ahead of the once-a-year political event. 

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