2nd LD: China cuts interest rates to bolster real economy

The People's Bank of China (PBOC) on Sunday announced that it will cut the benchmark deposit and loan interest rates by 25 basis points (bps) starting May 11.

After the cut, the one-year deposit rate will stand at 2.25 percent, and one-year lending rate at 5.1 percent, according to the central bank.

This is the third round of rate cuts by the PBOC since November and the latest effort by policy makers to tackle the increasing pressure from economic slowdown.

The cuts will lower funding costs to facilitate healthy development of the real economy and ensure a modest monetary environment amid the ongoing strategy of national economic restructuring, the PBOC said.

While economic reform accelerates, China still faces relatively high downward pressure as external demand continues to fluctuate, the PBOC said.

The economy expanded 7 percent in the first quarter of 2015 year on year, the lowest quarterly reading since the financial crisis.

Besides the rate cuts, the central bank also slashed the reserve requirement ratio in February and again in April to alleviate the financing burden on enterprises and bolster the economy.

China's low inflationary level and high real interest rates provide ample room to adopt such tools, the PBOC said.

The cut was in line with market expectation of pro-growth monetary measures after a string of indicators, including manufacturing activity and foreign trade, suggested the world's second largest economy confronted a rocky ride on its reform drive.

Given looming downward pressure and deflationary risks, the cut, a wise move, responds to the economic circumstance and will serve as a boon to lowering financing costs, said Qu Hongbin, chief economist for China at HSBC.

The PBOC said it would continue to implement prudent monetary policy and make moderate adjustments based on changes in liquidity, inflation and economic situation, striking a policy balance between economic restructuring and growth.

The central bank also decided to adjust the upper limit of the floating band of deposit rates to 1.5 times the benchmark from the previous 1.3 times, another step toward liberalizing the interest rates mechanism. Endi