China just took another step to boost its struggling economy - but experts say it needs to do far more

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  • China lowered borrowing costs for the second month in a row on Friday in an effort to bolster its struggling economy.
  • The People's Bank of China cut its Loan Prime Rate (LPR) by 5 basis points to 4.2%, a much smaller move than those made by the US Federal Reserve and European Central Bank in recent weeks.
  • But experts are warning that the cut might not be enough to stave-off slowing growth brought on by the ongoing trade war with the US.
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China cut its new one-year benchmark interest rate for the second month in a row on Friday, marking the country's latest attempt to shore up economic growth. But experts are warning the effort might not be enough to prevent a slowdown brought on by the ongoing trade war with the US.

The People's Bank of China lowered its loan prime rate (LPR) by 5 basis points to 4.2%, a much smaller move than those made by the US Federal Reserve and European Central Bank in recent weeks.

"Since the new LPR is relatively untested, the PBOC appears to be taking a measured approach at first," Julian Evans-Pritchard, senior China economist at Capital Economics, said in a research note to clients on Friday.

He continued: "With economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pick-up in credit growth, we think the PBOC will need to start engineering larger declines in the LPR before long."

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The small move suggests China is hesitant to follow in the footsteps of other global central banks due to concerns of rising debt levels, according to Reuters.

"I think it is more a protection story, to not fall into a weaker growth range," Iris Pang, a Greater China economist at ING told Reuters. "Growth has been very weak and this is more for lowering interest costs for production and infrastructure."

The cut comes at welcome time for Chinese producers. Industrial output growth slid to a 17 and a half-year low in August as the trade war with the US continued to weigh on manufacturers.

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