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China cuts key interest rates to support growth

China cut benchmark interest rates for the second time in a month and allowed banks to offer bigger discounts on their lending costs, stepping up efforts to reverse a slowdown.

The one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow, the People’s Bank of China said on its website today. Banks can offer loans of as much as 30 percent less than benchmark rates, the central bank said.

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China is acting more aggressively to promote growth that may have decelerated for a sixth quarter as Europe’s turmoil crimps exports and domestic property restrictions curb the housing market. Officials moved after two manufacturing indexes fell in June and ahead of a report on second-quarter gross domestic product, due to be released on July 13.

“If China wants to ensure a growth rate of above 7.5 percent or even 8 percent, it has to enhance policy fine- tuning,” Qu Hongbin, Hong Kong-based chief China economist for HSBC Holdings Plc, said before the release.

The PBOC cut both benchmark lending and deposit rates by 0.25 percentage point on June 7, the first reduction since 2008. Authorities also allowed banks to offer higher rates on deposits and lower borrowing costs on loans. The central bank said on June 29 it will keep fine-tuning policy even as the growth rate was within a “targeted zone.”

Slowing Expansion

China’s economy expanded 8.1 percent in the first quarter of 2012 from a year earlier, the least in almost three years and the fifth quarterly slowdown. Bank of America Corp. estimated expansion slid to around 7.5 percent in the second quarter while Credit Agricole CIB projected a drop to as low as 7 percent.

China cut interest rates last month for the first time in three years before government reports that showed consumer prices rose 3 percent in May, the least in two years, and industrial output and retail sales trailed estimates.

Companies from Nike Inc. to McDonald’s Corp. and Caterpillar Inc. are feeling the effects of a Chinese slowdown. Nike has said it has too much inventory in the nation.

Anhui Conch Cement Co., China’s biggest maker of the construction material, said first-half profit may fall by more than 50 percent, and Procter & Gamble, the world’s biggest consumer goods company, has reported a slowdown in the Asian nation.

Credit Suisse Group AG has reduced its estimate for China’s economic expansion this year to 7.7 percent, which would be the slowest pace in 13 years, on weakness in exports, investment and corporate profits. Deutsche Bank AG lowered its forecast to 7.9 percent. The predictions compare with a 9.2 percent expansion last year.

In efforts to support the economy, the National Development and Reform Commission is speeding approvals for investment projects, the Ministry of Commerce announced incentives for purchases of energy-efficient household appliances and the banking regulator delayed tightening lenders’ capital requirements.

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