China lowered its benchmark rates in the country, at a time when a slowdown in growth in the world's second largest economy is anticipated.

At a time when the debate in the world's major central banks is about when to raise interest rates, with the US Federal Reserve expected to raise its key rate as early as March, the Bank of China has cut its benchmark rates. The move is an attempt to stimulate the world's second largest economy.

According to newspaper Negócios, the Bank of China reduced the 1-year benchmark rate by 10 basis points from 3.8% to 3.7%. The 5-year rate dropped only 5 points, from 4.65% to 4.6%, in what is the first cut since April 2020.

The decision to lower interest rates comes at a time when fears of a slowdown in the growth of the world's second largest economy are growing.

China is expected to maintain its supportive policy by promoting further interest rate cuts throughout the year. "Loans will now be slightly cheaper which should help boost household consumption. The PBOC (People's Bank of China) has already pressured banks to increase the volume of mortgage loans," says Sheana Yue, an economist at Capital Economics, in a commentary quoted by CNBC.

Nomura stresses that the impact of these cuts will be limited, but anticipates further cuts in the coming months to provide liquidity to the system and limit currency appreciation in the country.

China has made an effort to make the country's growth more dependent on domestic consumption, but this has translated into a slowdown in the country's growth rates.

Still, last week Goldman Sachs revised down its forecast for China's economy in 2022, anticipating growth of 4.3%, lower than the 4.8% previously expected. The Beijing authorities are expected to target growth of close to 5% this year.