China cuts key interest rates for first time in 4 years

China's central bank has slashed its interest rates by 25 basis points in a move that has surprised the global markets today (June 7th).

The People's Bank of China (PBOC) has taken the action - which is the first cut since the financial crisis was at its zenith in 2008 - to shore up slackening economic expansion.

This flies in the face of the general consensus view of economists, who believed the central bank could refrain from a reduction in interest rated in 2012 and would slash the required reserve ratio of the nation's banking sector.

As a result of PBOC's decision, the benchmark one-year loan rate was cut by 25 per cent to 6.3 per cent, while deposit rates are down to 3.2 per cent from 3.5 per cent.

In addition, China - which is the world's second-largest economy - has delayed the implementation of tougher bank capital regulation amid fears such rules may have hurt lending.

These guidelines have now been delayed until January 2013 and will increase the minimum cushion of capital a bank must keep in order to soak up losses on their loans.

China had originally proposed to introduce these rules at the start of this year and the postponement has ignited fears the move may curb lending at a time when decision-makers in Beijing have been trying to give growth a kick start amid slowdown in the country's economy.

This is the latest move in a series of attempts by the country to stimulate expansion.

The Chinese economy grew at an annual rate of 8.1 per cent in the first quarter of 2012, which is the slowest pace in nearly three years - but still faster compared with most countries.

At close today, the Hang Seng was up 0.8 per cent to an index value of 18678.2 points.