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China slashes interest rate for third time amid slowing economy

In the midst of an economic slowdown, China’s central bank has slashed interest rates for the third time in recent months to kickstart the country’s economy.

yuan

The benchmark deposit and loan interest rates have been decreased by 25 basis points, said the People’s Bank of China (PBOC). At the new rates, the one-year deposit rate will be 2.25% and the one-year lending rate will be 5.1%.

The bank previously slashed rates in November last year and March this year.

PBOC believes the slashing of rates will help in lowering funding costs to ensure the economy’s development and to create a modest monetary environment for the banks in the midst of the current national economic restructuring strategy.

The move follows the announcement by the Chinese government that the country’s exports had gone down by 6.4% in April in comparison to last year.

According to the Standard Daily, build up of the mounting debt since last decade, including the borrowings of local government for development of infrastructure, falling exports and suffering real estate, has resulted in the slowdown of the economy.

Speaking about the country’s growing debt, the PBOC said in its monetary-policy report that the country is being forced to use lot of resources in repaying and rolling over debt while having to limit the possibility for further fiscal expansion.

Sources familiar with the matter told the Wall Street Journal that the bank will also be considering a credit-easing tool that will help local governments to restructure debts.


Image: China’s one-year lending rate will now be 5.1%. Photo: courtesy of Keattikorn/freedigitalphotos.net.