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Home > Investments > Emerging Markets

China cuts rates for first time since 2008

World’s second largest economy eases interest rates by 25 basis points.

By Bradley Gerrard | Published Jun 07, 2012 | comments

China has cut its interest rates by 25 basis points, something it has not done since 2008.

The country has reduced the reserve requirement ratio - the amount of capital it demands banks keep on their balance sheets - since 2008 but has not cut the benchmark interest rate.

The one-year deposit rate will drop to 3.25 per cent from 3.5 per cent as of tomorrow while the one-year lending rate will fall to 6.3 per cent from 6.5 per cent, the People’s Bank of China said.

It added banks could offer a 20 per cent discount to the benchmark lending rate - up from 10 per cent.

The interest rate last moved in July 2011, when rates were increased.

The move to cut rates comes shortly after the Chinese government dashed market hopes of a 2008-style stimulus package, when the government poured 4trn yuan (£400bn) into the economy.

The cut in interest rates comes as recent data showed that China’s manufacturing sector had weakened with the official purchasing managers’ index for manufacturing falling to 50.4 in May - its lowest in five months - from 53.3 in April. A level above 50 signals an expansion in activity.

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