PBOC lowers benchmark lending rate to record-low 4.35%

Deposit cap scrapped in further step toward liberalization

China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S.

The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the People's Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

Authorities are seeking to cushion an economy forecast to grow at the slowest annual rate in a quarter century as old growth drivers such as manufacturing and construction falter and new drivers like consumption struggle to compensate. China's reduction to record-low rates and anticipated stimulus in Europe and Japan add to monetary policy divergence with the U.S., where the Federal Reserve is considering its first rate increase in nine years.

"The Fed may be considering raising interest rates, but in much of the rest of the world, China included, central banks are facing weak growth and a lack of inflation, and are thus more likely to ease rather than tighten monetary policy," said Louis Kuijs, head of Asia economics at Oxford Economics Ltd. in Hong Kong.

Stock-index futures jumped in Hong Kong and European stocks extended gains. The Standard & Poor's 500 Index was 1.1 percent higher at 10 a.m. in New York.