China has launched new stimulus measures designed to boost the country’s flagging economy.
The People’s Bank of China cut its key lending and deposit rates by 0.25% on Tuesday. The one-year lending rate is now 4.6% and the deposit rate is 1.75%.
The central bank also said it was requiring large banks to keep less cash in reserve, a move that should boost activity by allowing banks to lend more money.
The moves follow a dramatic crash in Chinese stock markets, which panicked investors around the world on Monday.
Worries about the pace of growth in the world’s second biggest economy were fueling the selloff.
Economists were expecting Beijing to act, especially after a key gauge of China’s manufacturing activity tumbled to its lowest level in 77 months last week.
“At this time, China’s economy is still facing downward pressures … global financial markets have also seen great volatility recently,” the central bank said on its website. “As such, there is a need to use monetary policy tools … to help support a stable and healthy development of the economy.”
The benchmark Shanghai Composite index extended its losses on Tuesday, falling 7.6%. That follows a massive tumble on Monday of 8.5%, the worst one-day drop since February 2007.