|China announces 1st rate cut since 2008|
China announced Thursday its first cut in benchmark interest rates in more than three years after slower-than-expected growth in the world's second-largest economy has raised concerns over an abrupt brake.
The People's Bank of China (PBOC), the central bank, said Thursday it would cut the benchmark interest rate for deposits and loans by 25 basis points beginning Friday.
It is the first time China has cut the benchmark rates since December 2008, after which it has raised the rates for five times to drain liquidity.
After the cut, the one-year deposit interest rate will fall to 3.25 percent while that of loan interest rate will be lowered to 6.31 percent.
The upper limit of the floating band of deposit rates will be adjusted to 1.1 times the benchmark while banks are allowed to offer 20 percent discount to borrowers.
"Given China's current economic situation and its policy shift towards maintaining growth, the cut is well within expectations," said Zhang Liqun, researcher from the Development Research Center of the State Council, or China's cabinet.
He said the move will facilitate business financing, project construction and stimulating credit demands.
The latest move came as China's GDP growth slowed to a nearly three-year low of 8.1 percent in the first quarter and key economic indicators for April continue to suggest downward risks, prompting the government to prioritize growth over inflation control.
The government should "place maintaining growth in a more important position and carry out preemptive policy adjustments and fine-tuning more forcefully according to the changing situation," according to a statement issued after an executive meeting of the State Council presided over by Premier Wen Jiabao last month.
To add fuel to the slowing economy, China announced the first reduction in the banks' reserve requirement ratio in December 2011, with another two cuts following this year, after 12 hikes since 2010.
But some analysts thought the latest move came sooner than expected.
"Although a cut had been widely expected, it came faster than I thought," said Song Guoqing, a member of the monetary policy committee of the People's Bank of China.
The loosening came as China's inflation rate slowed to 3.4 percent in April from 3.6 percent in March and was widely expected to ease further in May due to falling food prices and the base effect.
China is due to release a string of economic data, including inflation and fixed-asset investment growth, on Saturday.