The People's Bank of China makes borrowing money cheaper by further cutting down interest rates. (Photo : Reuters)
Officials from China's central bank announced over the weekend that it will further cut interest rate, which has just been decreased three months earlier.
The rate cut, effective on March1, Sunday, intends to slash the one-year benchmark lending rate by 25 basis points to 5.35 percent. Meanwhile, the rate on deposits will also be diminished by the same amount to 2.5 percent. This was announced by the People's Bank of China (PBOC) on Saturday through a release posted on its website.
Furthermore, PBOC also announced that it has provided banks greater flexibility with regard to deposit interest rates. From a previous 1.2- time ceiling, the new deposit rate benchmark is now raised to 1.3.
The said monetary move will allow people to borrow money at a cheaper rate. However, bank officials clarify that this does not mean that the government will make a shift in its prudent financial policy.
In an accompanying statement, the central bank said that "the rate adjustment's primary purpose is to continue allowing benchmark interest rates to guide market rates, further consolidate achievements in lowering social financing costs, and create a neutral, moderate monetary and financial environment for the economy's restructuring and transition."
According to the officials, real interest rates have gone up following a sharp decrease in producer prices alongside a moderate inflation rate.
Prior to the Saturday announcement, the bank had previously announced a cut on reserve requirements on Feb. 4, a first since May of 2012. Experts see the reduction as an answer to the "cooling" Chinese economic state.
On Nov. 21, 2014, the bank has also decreased the said rate.
It is further perceived that the interest rate reduction is a supplementary move to the November reserve requirement decrease, helping the economy sustain its steady growth.
Bank officials said that since the year-ender cut, lending rates have been declining. Lower lending costs imply a positive effect on the cooling property market, a sector whose stability is regarded as significant key in attaining overall growth in the economy.
In a February data revealed by the China Real Estate Index System, there had been a steeper decline in the average prices of new homes on a yearly basis.
