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China cuts interest rates in bid to boost growth

China’s central bank has cut borrowing cuts for the first time since the 2008 financial crisis, in a bid to spur its slowing growth.

Yuan currency 2012 01 16Enlarge
China’s gradual relaxations of controls on the value of the yuan and on capital flows means that the yuan is set to become a major international currency. (AFP/AFP/Getty Images)

China’s central bank has cut borrowing cuts for the first time since the 2008 financial crisis, in a bid to spur its slowing growth.

The People’s Bank of China trimmed its benchmarch one-year loan rate by a quarter percentage point to 6.31 percent on Thursday, while deposit interest rates were cut from 3.5 percent to 3.25 percent and banks were provided with greater flexibility to pay higher rates to savers and offer lower rates to borrowers, the BBC reports.

China has also pushed back until January 2013 a set of tougher bank capital requirement rules that increase the amount of capital lenders have to maintain in reserve to protect against potential losses. Beijing fears that the introduction of the rules may result in lower lending at a time when it is keen to reverse a slowdown in the Chinese economy, according to the BBC.

Thursday’s announcement comes just two days before Beijing is scheduled to publish figures on inflation, investment and data. According to Bloomberg, today’s move may be a sign that the economy is weaker than the government had anticipated. Shen Jianguang, a Hong Kong-based economist, told the financial news service that “the data to be released over the weekend must be very weak and inflation must have eased sharply.”

Exports from China –the world’s second-biggest economy after the United States and a key driver of growth worldwide – have been hurt by the sovereign debt crisis currently raging in Europe, which has seen nearly a dozen countries in the region slip into recession and demand for Chinese goods drop, CNN Money reports.

While China’s GDP is still growing at annual rate of 8.1 percent, this is sharply lower than the 8.9 percent rate reached at the end of 2011. 

http://www.globalpost.com/dispatch/news/regions/asia-pacific/china/120607/china-cuts-interest-rates-bid-boost-growth