China cuts interest rates amid concerns over economy

HONG KONG — China’s central bank on Tuesday cut its benchmark interest rate and freed banks to lend more, the latest signs of the government’s growing distress over slumping stocks and slowing economic growth.

“Currently, global economic trends are opaque and confusing, and market volatility is quite large, and this has had some impact on the Chinese economy,” Li said, according to a report on Chinese television news.

“Currently, there are persisting downward pressures on the country’s economic growth,” the central bank, the People’s Bank of China, said in an explanation that accompanied the announcement Tuesday evening.

There has also been quite large volatility in global capital markets recently, and monetary policy tools need to be applied more flexibly.

The central bank also made a step toward interest rate liberalization by removing the upper limit on interest rates for fixed-term deposits of more than one year.

Injecting more funds by freeing banks to lend more should help soften the blow of deflation and stem capital outflows.

Since June, when Chinese shares began to tumble, regulators in Beijing have adopted a host of policies including supplying hundreds of billions of dollars to a state agency to support stock purchases, halting IPOs, banning selling by large shareholders and directing state-owned firms to buy shares.

The extensive interventions have alarmed some analysts who believe that China’s previous moves amounted to unjustified state action to prop up a market at levels that do not reflect economic fundamentals.

Li-Gang Liu, the chief China economist at the Australia and New Zealand Banking Group, estimated that Tuesday’s reserve ratio cut would immediately insert around $100 billion into the banking system.