China's central bank announced on Saturday that it will slash benchmark deposit and loan interest rates by 25 basis points from March 1, a second such cut in three months, underscoring continuing downward pressure on the world's second-largest economy.

The cut will bring the one-year deposit rate to 2.5 percent, and the lending rate to 5.35 percent, according to a statement on the website of the People's Bank of China (PBOC).

"The focus of the latest adjustment is to keep real interest rate levels accommodative to the changing fundamental trends in growth, inflation and employment," the bank explained in a separate statement.

But the cut does not represent an adjustment from China's prudent monetary policy, it reiterated.

China's economy grew 7.4 percent in 2014, the weakest annual expansion in 24 years, and a string of economic indicators for the new year, including manufacturing and trade data, all suggested continued weakness.

Latest data showed the HSBC flash manufacturing purchasing mangers index (PMI) improved slightly in February, rising to a four-month high of 50.1, but the bank cautioned that domestic economic activity was likely to remain sluggish and external demand looked uncertain.

The protracted slowdown came amid subdued price levels in the country, which allowed leeway for the government to further ease monetary policies if needed.

China's consumer inflation in January came in at the slowest pace since November 2009, and the producer price index (PPI), which measures wholesale inflation, plunged 4.3 percent, marking the 35th straight month of decline and pointing to continued weak market demand.

To try to arrest the economic slowdown, China cut interest rates in November and lowered the reserve requirement ratio for banks in early February to ease financing costs for enterprises.

Qiu Gaoqin, a senior financial analyst with the Shanghai-based Bank of Communications, said the rate cut will bring down the cost of private financing, ease business pressure, in turn helping to stabilize growth.

But some economists seemed less optimistic on the effect.

Guan Qingyou, with Minsheng Securities' research institute, said although the move will help reduce debt risks and ease deflationary pressure, whether it will significantly address the slowdown remains to be seen.

Kuang Xianming, director of the research center for economy under the China Institute for Reform and Development, pointed out that as the marginal effect of the policy moves dwindle, China needs to accelerate market-based reforms to create a better macro-environment for businesses.

In another step towards liberalizing the interest rates mechanism, the PBOC on Saturday decided to adjust the upper limit of the floating band of deposit rates to 1.3 times the benchmark from the previous 1.2 times.

"But this is not enough; we need bigger moves on the financial market," Kuang said.

China is expected to unveil its growth target for 2015 in a government work report to be delivered by Premier Li Keqiang on March 5. Analysts largely expect the goal to be set at around 7 percent.

Go to Forum >>0 Comment(s)