- Li Huiyong, an economist at Shenyin and Wanguo Securities
China surprised markets at the end of the trading week by cutting interest rates in an effort to support the world's second-biggest economy as it is set for the slowest expansion in almost a quarter of a century. The unexpected move sent global shares, oil and metal prices higher. The one-year lending rate was reduced by 0.4 percentage point to 5.6%, while the one-year deposit rate was lowered by 0.25% point to 2.75%, the People's Bank of China said. The interest rates reduction puts China on the side of the European Central Bank and Bank of Japan in stepping up fresh stimulus and contrasts with the Federal Reserve, which has winded down its quantitative easing programme. Previously the PBOC had focused on selective monetary easing and liquidity injections.
The cut, the first in over two years, came as factory growth has stalled and the property market, long the main driver of growth, has remained weak, dragging broader activity and curtailing demand for everything from furniture to cement and steel. Just a few weeks ago, Chinese President Xi Jinping had assured global business leaders that the risks faced by China's economy were "not so scary" and the government was confident it could withstand the dangers. Chinese leaders have also repeatedly reiterated they would tolerate somewhat slower growth as long as the labour market remained strong.
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