China calls on banking giants to cut interest rates

Chinese authorities have asked the country's biggest banks to lower interest rates for the second time in less than a year, marking an escalating effort to boost the world's second-largest economy .

Chinese state-owned banks, including Bank of China, Industrial & Commercial Bank of China and Bank of Communications, have been advised to cut interest rates on a range of products, including demand deposits by 0.05% and three- and five-year deposits by at least 0.1%, according to Bloomberg.

Banks are considering the government 's (non-binding) offer, and could adjust interest rates as early as this week. The current annual interest rates offered by these banks are 0.25% for demand deposits, and 2.6% and 2.65% for three-year and five-year deposits.

Cutting deposit rates will reduce banks’ costs, thereby reducing lending rates, attracting consumers and businesses to borrow. Lower deposit rates will also cause consumers to limit their cash savings and invest more.

World - China calls on banking giants to cut interest rates

The headquarters of the People's Bank of China (PBOC), one of the world's largest central banks, in Beijing. Photo: Global Finance

Chinese authorities are therefore looking to boost lending to boost the economy's recent slow recovery due to high unemployment, a sluggish property market and rising geopolitical tensions.

After surging in the first quarter of 2023, new loans began to weaken in April as consumers and businesses cut back on borrowing. Households are saving more and paying down mortgages, while businesses face falling demand and profits.

Low inflationary pressures in China will create room for further monetary easing in the coming period, according to Zhang Ming, a researcher at the Chinese Academy of Social Sciences, the country's top government think tank.

China may consider further interest rate cuts and target reserve requirement ratio (RRR) cuts to reduce lending costs, Mr. Zhang said.

Meanwhile, Zheshang Securities chief economist Li Chao also predicted a possible rate cut and RRR cut in the second half of this year. He expects the US Federal Reserve (Fed) to start cutting interest rates in the fourth quarter, giving Beijing more room to ease monetary policy.

China cut its RRR for the first time in 2023 in March, but left its benchmark lending rate unchanged. The widening interest rate differential with the US has significantly limited the country's scope for monetary easing.

Nguyen Tuyet (According to Bloomberg, Reuters)

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