China cuts key interest rate for 2nd time in month

[July 05, 2012]  BEIJING (AP) -- China cut its key lending rate Thursday for a second time in one month as it stepped up efforts to reverse its deepest economic slump since the 2008 global crisis.

Interest on a one-year loan will be reduced by 0.31 percentage points to 6 percent effective Friday, the central bank announced.

The communist government has rolled out a series of stimulus measures since March after growth slowed to a nearly three-year low of 8.1 percent in the first quarter.

Private sector analysts expect second-quarter growth to fall further, possibly dipping as low as 7.5 percent, before rebounding in the second half.

Trade has weakened steadily as high U.S. unemployment and Europe's debt crisis batter global consumer demand.

The central bank cut rates June 7 for the first time in four years and has reduced state-set gasoline and diesel prices. Authorities have promised more spending on building low-cost housing, airports and other public works.

Regulators also have approved a wave of massive investment projects by state companies, including two multibillion-dollar steel mills.

Inflation that spiked to a three-year high last year has fallen, giving Beijing room to cut rates and pump money into the economy without triggering a possible renewed bout of politically dangerous price increases.

Still, the government is moving cautiously after its 4 trillion yuan ($586 billion) stimulus that helped China rebound quickly from the 2008 global crisis fueled price rises and a wasteful building boom.

The central bank also cut rates paid on bank deposits Thursday but by a smaller margin of 0.25 percentage points. That effectively transfers money from cash-rich state banks to savers by shrinking the margin between lending and borrowing rates.

[Associated Press]

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