China cuts interest rates for 3rd time in 5 months

Hoping to boost its flagging economy, China announced a cut in its benchmark interest rate on Sunday, the third in five months.

By cutting the lending rate for banks, the government hopes to spur loans to business in the world's second-largest economy.

China had fresh bad news on its economy Friday, with exports falling 6.4 per cent in April compared to last year. Imports fell by 16 per cent, a reflection of cheaper commodity prices and weak demand.

Fears of unemployment

Surveys of manufacturers showed factory employment in April fell to its weakest level in a year, raising fears among China's leaders over how to keep its people in jobs.

The Bank of China said Sunday that it would cut the rate on a one-year loan by commercial banks by 0.25 percentage point to 5.10 per cent. The interest rate paid on a one-year deposit was lowered by 0.25 point to 2.25 per cent.

Interest rates were also cut on Nov. 22 and then again on March 1.

Although China's communist leadership set its growth target for the year at seven per cent, well below the double digit annual growth seen in the past decade, they fear it is coming in too low. First quarter growth was seven per cent, but there is increasing doubt over whether China has maintained that pace since then.

Although China has said it is ready to move away from an economic model based on export growth and massive levels of new investment, the transition is proving a little too bumpy than Beijing had anticipated.

Nor is there much further room for stimulus, as debt levels are rising at state-owned firms because of credit-loosening in the past.

Reforming banks

Regulators also are trying to make the banking industry more market-oriented in hopes of making the economy more competitive and efficient.

The central bank said Sunday that the band within which banks are allowed to set the interest rate they pay depositors will be widened from 1.3 times the benchmark rate to 1.5 times.

That will allow healthier banks to attract more deposits by offering higher interest.