China cuts interest rates

The People’s Bank of China has cut interest rates for the third time in six months, in order to boost the nation’s slowing economy.

Shares in China surged on the news to erase earlier losses, with the Shanghai Composite Index soaring more than two per cent.

China’s central bank lowered its benchmark rate by 25 basis points to 5.1 per cent, with the aim of boosting development. However, it’s also a reaction to the ongoing economic slowdown, which is expected to be drawn out over a number of years.

Last week, the International Monetary Fund released its latest projections that suggest the Chinese economy will stabilise at six per cent by 2017.

However, the downward pressure remains and was further highlighted by recent data. Downbeat inflation and trade data compounded the new projections for slowing growth. Furthermore, the most recent rate cut suggests that imminent industrial output and investment data will also disappoint.

Other economic problems include a cooling property market and deflationary pressures. Analysts note that Chinese interest rates will likely fall further, as rates relative to inflation remain higher than the historical average.