China's central bank cuts interest rates

China's central bank today announced a steep cut in its interest rates -- by four times the usual margin -- in a signal that it would pull out all the stops to boost weakening economic growth.

The benchmark one-year lending and deposit rates will both be reduced on Thursday by 108 basis points, compared with the usual 27 basis points in Chinese rate cuts, the People's Bank of China said.

"It means the government is moving on more fronts to stimulate growth," said Stephen Green, a Shanghai-based economist with Standard Chartered Bank.

It was China's fourth interest rate cut since mid-September.

Earlier this month, China announced an unprecedented $590 billion spending package to lift the economy, which grew at its slowest pace in five years last quarter.

The central bank move came a day after the World Bank said it expected China's economy to grow by 7.5 per cent in 2009, a 19-year low.

After the rate cut, one-year lending rates in China will be 5.58 per cent, while one-year deposit rates will drop as low as 2.52 per cent.

With inflation at 4.0 per cent in October, it means that borrowing money from the bank is currently very cheap.

At the same time, putting money in the bank will be a guaranteed way to lose cash, providing the Chinese with a strong incentive to spend and thus boost domestic consumption.