China Cuts Interest Rate for 2nd Time in Three Weeks

China cut interest rates for the second time in three weeks as the global financial crisis threatened to undermine the world's fourth-largest economy.

The key one-year lending rate will fall to 6.93 percent from 7.20 percent, effective tomorrow, the People's Bank of China said on its Web site today. China also cut the proportion of deposits that banks must set aside by 50 basis points to 17 percent effective from Oct. 15, the central bank said.

The cut came as the Federal Reserve, European Central Bank and four other central banks lowered interest rates in an emergency coordinated bid to ease the economic effects of the financial crisis. China cut borrowing costs for the first time in six years on Sept. 15 to reduce the risk of an economic slump.

China shifted emphasis from fighting inflation to sustaining growth in July, when the Communist Party's top decision-making body, the Politburo, dropped any reference to maintaining a ``tight'' monetary policy.

Industrial production grew by the least in six years in August, export orders have dropped to the lowest level since 2005 and property prices are falling.

Easing inflation has given policy makers more room to move as a global credit squeeze and the worst housing recession since the Great Depression in the U.S. dim the outlook for exports. Inflation was 4.9 percent in August, down from February's 12-year high of 8.7 percent.

Economic growth slowed for four consecutive quarters to 10.1 percent in the three months through June. House prices across 70 major cities fell 0.1 percent in August from July.

China has already slowed the pace of gains by the yuan against the dollar, eased annual quotas that limit lending by banks and increased export-tax rebates for garments and textiles.

China Cuts Interest Rate for 2nd Time in Three Weeks, Bloomberg
10/8/2008 5:35:28 AM