The iShares FTSE China 25 Index Fund (NYSEArca: FXI) rose 2.8% in Thursday’s premarket trading after China’s central bank cut interest rates by a quarter point.
“China delivered twin surprises on interest rates on Thursday, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates in step along the path of liberalization,” Reuters reported.
China’s economy, the second-largest in the world, appears to be slowing. Its central bank had been trying to stimulate by lowering reserve requirements for lenders.
On Thursday, it cut the benchmark rate on loans and deposits by 25 basis points.
“We believe that the rate cut will be effective in meeting the short-term objective of getting credit and the economy moving,” said Mark Williams, chief Asia economist for Capital Economics, in a CNNMoney report. “There could be no stronger signal that policymakers are focused on growth. That alone should prompt more activity by the large state-owned sector.”