China Cuts Key Rates First Time In Six Years On Rising Global Credit Risks

Beijing, China (AHN) - Post-Lehman Brothers Holdings Inc. bankruptcy, global credit markets are likely to increase pressure on the financial firms in emerging markets.

Fearing the fall out, China has slashed its interest rates for the first time in six years.

The People's Bank of China (PBoC) said on Monday that it is reducing the benchmark one-year key lending rate by 27 basis points to 7.20 percent, effective tomorrow (September 16).

The central bank will also reduce the six-month lending rate by 36 basis points to 6.21 percent, the lending rate for loans between three and five years down by 18 basis points to 7.56 percent and the five-year lending rate by 9 basis points to 7.74 percent.

The Chinese central bank has been following a tight monetary policy over the last few years to battle inflation, but the authorities did not see any deferment from sluggish economic growth.

Last week, a report showed that China's industrial production growth expanded at the sluggish pace in six years and fell to its lowest level in 18 months in the month of August.

The National Bureau of Statistics report showed the output growth rate expanded 12.8 percent, after a rise of 14.7 percent in the month of July.

The growth rate in August was 1.9 percentage points below growth rate in July, while 4.7 percentage points below August 2007.

The market analysts on Wall Street have welcomed the move by the Chinese authorities but they suggest that global slowdown will continue to hurt the world's fourth-largest economy as inflation rate has remained high and stronger currency has been hurting exporters.