China Cuts Interest Rates to Stimulate Slowing Economy

HANGHAI — With its growth engine slowing, China said on Saturday that it was reducing the nation’s benchmark interest rates for the second time in three months.

In an announcement on its website, China’s central bank said that, effective Sunday, the one-year bank lending rate would drop 0.25 percentage point to 5.35 percent and that deposit rates would also be reduced by a quarter percentage point.

The move, which will make it cheaper to borrow money, comes as policy makers search for ways to stimulate the economy while also promoting overhauls aimed at allowing market forces to play a greater role in the country’s development.

China already has the world’s second-largest economy after the United States. And during much of last year, it was expanding about 7.5 percent. But late in the year, momentum slowed considerably, raising concerns that growth targets would not be met and that a deeper downturn was possible.

In the fourth quarter of last year, growth dipped to 7.3 percent, the slowest rate in more than two decades. And in January, China’s consumer price index slid to 0.8 percent, its weakest showing since late 2009.

Economists are now pressing the People’s Bank of China to ease its monetary policy in the hope of bolstering growth.

“China’s real economic activity has slowed further in recent months, largely due to the ongoing property downturn,” Wang Tao, an economist at UBS, wrote last week in a report to clients. “Weak domestic demand has aggravated excess capacity issues in many sectors, and together with a sharper decline in commodity and oil prices, have led to rapid disinflation, and for the industrial sector, deeper deflation. Against this backdrop, it would seem clear that monetary policy in China should be eased more aggressively.”

Through much of last year, the government seemed to resist calls for economic stimulus packages and monetary easing out of fear that the policies might lead to a repeat of the events of 2009, when a vast government stimulus effort pumped up growth but also led to soaring debt for corporations and local governments.

There were also concerns among some experts that a stimulus package or monetary easing would aid inefficient companies and allow companies to pile on even more debt.

But a sluggish property market and signs of deflationary pressure have become urgent concerns in a country that has benefited from nearly two decades of spectacular growth, analysts say.

The government has tried to make it easier for small business to obtain loans and allowed China’s currency, the renminbi, to weaken against the dollar, aiding exporters.

In November, for the first time in two years, the government reduced interest rates. In February, it lowered the reserve requirement ratio, allowing banks to lend a larger share of their assets. The move on Saturday to cut rates again is an effort to reduce corporate debt burdens and financing costs for borrowers and home buyers.