China cuts bank rate to perk up its economy

China's economic policymakers gave their counterparts in Europe and the UK a lesson in decisiveness yesterday, as they caught markets by surprise with a 25 basis point cut in interest rates.

The People's Bank of China announced its first rate cut since the 2008 financial crisis after its national markets had closed, but the move prompted a surge in stock markets in the UK and the US.

"The monetary easing complements the recently ramped-up fiscal stimuli, showing that growth preservation has become the paramount priority of the government," said Xianfang Ren, IHS Global Insight's China economist.

China began to raise rates in October 2010 in order to cool a real-estate construction bubble.

But recent signs that the economy is slowing have persuaded policymakers to act. The Bank of China's one-year lending rate will fall from 6.56 per cent to 6.31 per cent and the one-year deposit rate will fall from 3.5 per cent to 3.25 per cent.

The Chinese central bank also announced more freedom for Chinese private banks on their lending rates to businesses.