China has cut its key interest rates for the first time since 2008, in an attempt to boost its slowing growth.
The benchmark one-year loan rate was cut by a quarter of one percent to 6.31% while deposit rates were cut from 3.5% to 3.25%.
The People’s Bank of China also gave banks flexibility to offer higher rates to savers and lower rates to borrowers.
“It’s a significant move – it’s a first step in rate liberalisation,” said Qinwei Wang of Capital Economics.
“The lower floor for lending rates creates more competition between banks, so banks cannot guarantee their profits as before.”
In addition, China has delayed the implementation of tougher bank capital rules amid concerns that they may hurt lending.
The rules, delayed until January next year, will increase the minimum cushion of capital a bank must keep to absorb losses on their loans.
There were fears that such a move may curb lending at a time when Beijing has been trying to boost growth amid a slowdown in its economy.
China had planned to introduce the rules at the start of this year.
The banks will be given a reasonable transition period to meet the new capital requirements “to help maintain appropriate credit growth”, China’s cabinet said in statement on its website late on Wednesday.
These are the latest in a series of attempts designed to stimulate the world’s second biggest economy.
China’s economy grew at an annual rate of 8.1% in the first three months of the year, the slowest pace in almost three years, but still extraordinarily fast compared with most countries.
Earlier this year, the International Monetary Fund warned that the eurozone crisis could almost halve China’s growth in 2012.
The head of its sovereign wealth fund, the China Investment Corporation, which is in charge of the country’s huge reserves, said in an interview published on Thursday that it was scaling back its European investments due to fears of a eurozone break-up.
Concerns about slowing growth in key export markets have also prompted China to reduce the amount of money banks need to hold in reserve three times in the past few months to give banks more cash to lend to consumers.
On Wednesday, it introduced fresh measures to boost lending to small and medium-sized companies, which are among the biggest contributors to growth.
The cabinet said it would lower the risk weighting assigned to loans given to such companies when calculating the cushion of capital a bank must keep.
It said the change was designed to, “expand the small micro-enterprises and personal loans to more effectively serve the real economy”.
