China cuts interest rates to boost economic growth
China has slashed its costs of borrowing for the first time since July 2012 on Friday, in a bid to kick-start its flagging economy.
The country's central bank reduced its one-year benchmark lending rate by 40 basis points to 5.6% to lift an economy on course for its slowest annual rate of growth in more than two decades.
The People's Bank of China added that one-year benchmark deposit rates would be lowered by 25 basis points and the reductions would take effect on 22 November.
ICYMI: Brace for impact. @Nouriel says the global economy is running on a single engine http://t.co/sr0cyrh4B7
— Project Syndicate (@ProSyn) November 18, 2014
China's economic growth slowed to a five-year low of 7.3% in the last quarter, with data such as house prices and manufacturing suggesting the economy has continued to slow.
Capital Economics called it a "major - and largely unanticipated - change of tack".
However, due to some of the peculiarities of the Chinese financial system the impact on the economy from the above decisions was expected to be limited, the think-tank said.
For starters, they would only help larger firms' funding costs, not even the amount of supply extended to them - unless caps on loan volumes were increased. Deposit rates were not expected to see much change, as the ceiling determining how far above the benchmark rates they can be set was also lifted.