China's third rate cut in half a year is indicating the economic slowdown is hitting the country's labor market.
As a response to weaker-than-expected economic activity data, which has raised concerns that the government's annual gross domestic growth (GDP) target of "around 7 percent" could be at risk, China's central bank reduced both the benchmark lending and deposit rate by 25 basis points to 5.1 percent and 2.25 percent, respectively.
"The PBOC move validates investors' assumption that sub-par economic performance will be tolerated by the government only up to a point where it does not pose a serious threat to employment," Uwe Parpart, head of research and chief strategist at Reorient Group, wrote in a note on Sunday. "That point may well have been reached."
Maintaining stable employment has been a top priority for the Chinese authorities as it takes the country away from an export-driven economic model leading it to the consumption-based economy.
While despite weaker growth the labor market has held up, initial signs of contraction have emerged.
The Liaoning province government said last month that it slashed its annual job creation target to 400,000 from 700,000, to reflect a "severe" employment trend, Reuters reported. At the same time, the labor ministry cautioned that authorities should not be "blindly optimistic" as the pace of job creation is slowing.
Will the rate cut thus make a difference?
As analysts say, this should help lower funding costs for the real economy and support economic activity.
"We think this interest rate cut will reduce the financial burden of existing borrowers as most lending contracts use the benchmark rates as a reference, though the reduction will not immediately happen for all borrowers since the period of adjustment is subject to the terms in the specific contracts," Yu Song, economist at Goldman Sachs wrote in a note on Monday.
"The adjustment period is typically monthly, quarterly or annually, with the tendency to shorten in the recent years," Song said.
