China cuts interest rates to ease deflation worries

A bank employee prepares bank notes at an Industrial and Commercial Bank of China Ltd cash center in Wuxi, Jiangsu province. [Photo provided to China Daily]

China's central bank on Saturday decided to cut benchmark interest rates by 25 basis points amid deflation worries.

Since March 1, the one-year loan interest rate will be lowered to 5.35 percent, while the one-year saving rate will drop to 2.5 percent, according to a statement posted on the website of the People's Bank of China.

The central bank also decided to allow more flexibility for the interest rates. The ceiling for the floating range for the saving rate could be 1.3 times the bench mark rate, instead of the previous 1.2 times, according to the statement.

The interest-rate cut follows declining factory profits and fiscal data that showed the weakest revenue growth since 1991.

A cut in the required reserve ratio announced Feb 4 was the first across-the-board reduction since May 2012. That followed the government’s official manufacturing gauge slumping into contraction for the first time in more than two years.

China’s leaders gather next week at an annual meeting, where they are anticipated to unveil a growth target of around 7 percent, down from “about 7.5 percent” last year.

Economic growth beat economists’ estimates last quarter, helping the full-year expansion remain close to the government’s target. The economy expanded 7.4 percent in 2014, the slowest in 24 years. Price data has given scope for further monetary easing. Consumer prices rose at the slowest pace in more than five years in January and factory-gate deflation deepened with slumping commodity prices.