Update | China's central bank announces long-awaited rate cut to boost economy

The People's Bank of China has cut benchmark interest rates for the second time in three months, adding to a raft of recent attempts taken to counter an increasing deflation risk and a slowdown in growth.

Effective today, one-year lending and deposit rates would be lowered 25 basis points to 5.35 per cent and 2.5 per cent respectively, the central bank said yesterday. It also lifted the ceiling on the deposit rate to 1.3 times the benchmark, up from 1.2 times.

"The consumer price level is at a historic low, leaving room for further interest rates adjustment," PBOC said. "The rate adjustment is to reinforce the positive results of falling financing costs [from recent action]."

In a surprise move in November, PBOC cut interest rates by 40 basis points for the first time since 2012. Yesterday's decision followed a 0.5 percentage point cut early last month in the bank's reserve requirement ratio (RRR) - the share of deposits it is required to park at the central bank as reserves.

"The rates cut and its timing are within our expectation," ANZ senior economist Raymond Yeung said. "PBOC is feeling the pressure for more monetary easing as deflation risk is rising."

January's consumer price index rose only 0.8 per cent year-on-year, the first time the inflation gauge fell below 1 per cent since late 2009. Producer price index - which reflects selling price changes by producers of goods and services - has recorded negative growth for 34 months.