China Forced Into Fourth Interest Rate Cut of the Year

China's central bank slashed interest rates by the biggest amount in 11 years today in an attempt to boost the country's fledging economy and shield it from the global financial crisis.

The bank cut rates by 108 basis points to 5.58% – the fourth time this year that the People's Bank of China has reduced rates. The deposit rate will drop by the same amount to 2.52% when the changes come into effect tomorrow.

Mark Williams, an economist at consultants Capital Economics, said: "It's a response to a slowdown in the Chinese economy and the global economic slowdown. It's seen as a complement to the big fiscal stimulus that was unveiled by the Chinese government two weeks ago."

A 4trillion yuan (£382bn) stimulus package was announced on November 9 in a bid to increase investment in housing and infrastructure. The package involves housing, rural development, railroads, power grids and rebuilding after the earthquake in Sichuan province in May.

Williams said a lot of the money announced in the package would come from lending and that it was the main reason why the central bank cut rates today.

China's economy has slowed significantly after the collapse of Lehman Brothers in September. Industrial growth slumped last month to a seven-year low while exports, imports, retail sales and fixed-asset investment all weakened.

Economists at Global Insight predicted GDP growth would slow from 11.9% in 2007 to 9.4% this year and 7.4% in 2009.

Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale, said: "They are continuing what is the best policy prescription in these times, which is increased fiscal spending and easier monetary policy. This is a good move.

"China is out to save itself here. The rest of Asia is strong, but all policymakers in the region and on the planet need to take their own steps. China is showing good leadership by what it has done."