China's central bank cut interest rates for the second time in three months Saturday, adding to signs the country's leaders are worried the economic slowdown is deepening too sharply.
The People's Bank of China announced a rate cut on one-year loans by commercial banks by 0.25 percentage point to 5.35 percent. The interest rate paid on a one-year deposit was lowered by 0.25 point to 2.50 percent.
Rates were last cut on Nov. 22. The new rates take effect Sunday.
Last year, China's economic growth fell to 7.4 percent — the lowest since 1990. It is expected to decline further this year, and a steep economic decline can raise the risk of politically dangerous job losses. The lower rates are expected to reduce financial costs for state companies and are a signal to state-owned banks to boost lending to them.
"The focus of the interest rate cut is to keep real interest rate levels suitable for fundamental trends in economic growth, prices and employment," the People's Bank of China (PBOC) said in a statement on its website.
Follows Tax Cuts
The latest round of cuts follow a string of tax reductions and other measures aimed at propping up growth. The government cut business taxes last week and has announced a pay hike for civil servants. The move came about 15 hours before China was due to release official factory and services Purchasing Managers' Index surveys for February, the last data before the National People's Congress, the rubber-stamp legislature, convenes next week.
Beijing has been trying to lower borrowing costs and stimulate investment to reinvigorate an economy that expanded at its slowest rate for 24 years in 2014.
However, the surprise interest rate cut in November, followed up by a February reduction in banks' reserve requirement ratios (RRR) that poured fresh cash into the financial system had shown little effect on confidence.
According to Eswar Prasad, an economics professor at Cornell University, China has been a primary driver of global economic growth and the slowdown will have a negative ripple effect throughout the world.
Jay Bryson, global economist for Wells Fargo Securities in Charlotte, North Carolina, disagrees, emphasizing instead that China's economy is still growing, just at a slower rate.
"China is not collapsing. You're looking at a country that was growing at double digits, and now it's only going to grow 6 to 7 percent," he said.