China cuts benchmark interest rates

The People's Bank of China will cut its one-year deposit rate and one-year lending rate by 25 basis points each to 1.5% and 4.35%, respectively, as it looks to bolster the slowing economy.

The cuts will come into effect as of Saturday.

The PBOC also cut the reverse requirement ratio for all banks by 50 basis points to 17.5%, with an extra 50 bps reduction for some lenders.

China’s latest rate cut is the sixth since November last year, as authorities there strive to prop up the flagging economy.

Figures released on Monday by China’s National Bureau of Statistic showed gross domestic product rose 6.9% in the third quarter compared with 7% in the first two quarters. This was better than the 6.8% forecast by economists but still the worst rate of growth since the first quarter of 2009.

“These moves come after clear signs of weakness in the economy in recent months. Amid continued capital outflow and falling CPI inflation, we believe these cuts may be necessary to prevent a tightening of financial conditions,” said Goldman Sachs.

The bank said the announcement of benchmark/RRR cuts are consistent with its forecast for this quarter.

“We expect further policy easing before yearend (one more 50 bp RRR cut) to offset the impact of ongoing capital outflows. Other policy tools, especially fiscal and quasi-fiscal policies, will also be used. The only policy move not likely to be used in the near term is further currency depreciation,” said Goldman.