China's consumer inflation is only about half of the government's target. More than that, the world's second largest economy has seen a steady decline in producer prices.
Also, an economic adviser to UBS Group says "deflation [is] embedded in [China's] corporate sector."
An October 23 Bloomberg article provides specifics about the rate cut. Here's an excerpt:
China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economyl...
The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective [October 24] the People's Bank of China said on its website on [October 23], while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.
Authorities are seeking to cushion an economy forecast to grow at the slowest annual rate in a quarter century as old growth drivers such as manufacturing and construction falter and new drivers like consumption struggle to compensate. China's reduction to record-low rates and anticipated stimulus in Europe and Japan add to monetary policy divergence with the U.S., where the Federal Reserve is considering its first rate increase in nine years.
"The Fed may be considering raising interest rates, but in much of the rest of the world, China included, central banks are facing weak growth and a lack of inflation, and are thus more likely to ease rather than tighten monetary policy," said Louis Kuijs, head of Asia economics at Oxford Economics Ltd. in Hong Kong.
You can read the entire article by following the link below: