China cuts lending rates to boost economic recovery

The People's Bank of China (PBOC) has cut its benchmark lending rate for the first time in 10 months, aiming to boost the world's second-largest economy 's post-pandemic recovery.

Accordingly, the one-year prime lending rate will be reduced by 10 basis points, from the current 3.65% to 3.55%. Meanwhile, the five-year prime lending rate, which is used to determine mortgage rates, will also be reduced by 10 basis points to 4.2% from the current 4.3%.

The last time China cut the base interest rate for these two terms was in August 2022 after data reflected a slow recovery in the country's economy.

The move by the People’s Bank of China (PBOC) was as expected by the market. This is the third policy rate cut by the country in just one week, aiming to send a signal of efforts to boost economic recovery amid increasing downward pressure due to complicated global geopolitical situation and weakening world demand.

(Illustration photo - CFP)

Last week, the PBOC cut its medium- and short-term lending rates by 10 basis points, with the 7-day reverse repurchase (repo) rate falling from 2% to 1.9% on June 12 and the 1-year medium-term lending rate falling from 2.75% to 2.65% on June 15.

Recent economic data has been less encouraging, with China’s exports falling in May, industrial output and retail sales growth falling short of forecasts, large-scale manufacturing facing weak demand, and real estate still struggling to recover from a three-year slump. The country is also facing deflation this year as consumer and business spending has been weak.

Several global investment banks have cut their growth forecasts for China after May data showed the recovery was slowing. Goldman Sachs cut its GDP growth forecast for China this year to 5.4% from 6%. It was followed by similar moves by UBS, Bank of America and JPMorgan.

China is considering policies to promote sustainable economic recovery, said a meeting of the Standing Committee of the Government chaired by Premier Li Qiang on June 16.

According to experts in this country, many Chinese localities may step up the issuance of consumer vouchers and consumer subsidies to improve people's consumption capacity. Meanwhile, in terms of macro adjustments, an analysis report by CITIC Securities said that the country is still likely to continue cutting interest rates and reserve requirement ratios (RRR) for the rest of this year./.

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