BEIJING: China cut benchmark lending rates for the first time since October on Tuesday, while major state banks lowered deposit rates as authorities work to ease monetary policy to help buffer the economy from the impact of the Sino-U.S. trade war.
The widely expected rate cuts are aimed at stimulating consumption and loan growth in a weakening economy while still protecting commercial lenders’ shrinking profit margins.
The People’s Bank of China said the one-year loan prime rate (LPR), a benchmark determined by banks, had been lowered by 10 basis points to 3.0% , while the five-year LPR was reduced by the same margin to 3.5%.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
The lending rate cut was announced just after five of China’s biggest state-owned banks said they have trimmed their deposit interest rates.
Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of Chinareduced deposit rates by 5-25 basis points (bps) for some tenors, according to rates shown on the banks’ mobile apps.
The banks cut interest rates on time deposits by 5 bps to 0.05%, reduced rates on one-year time deposits by 15 bps to 0.95% and shaved off 25 bps on three-year and five-year time deposits.
These deposit rate reductions should guide smaller lenders in making similar cuts. Reuters reported on Monday that China’s major state banks plan to cut their deposit rates from Tuesday, citing sources.
The rate cuts are part of a package of measures announced by PBOC Governor Pan Gongsheng and other financial regulators before talks between China and the U.S. in Geneva earlier this month that led to a de-escalation in their trade war.
China’s central bank to spur financing support for consumption, trade
Global investment banks are raising their forecasts for China’s economic growth this year, after Beijing and Washington agreed to a 90-day pause on tariffs, despite uncertainty around Sino-U.S. trade negotiations.
“We still believe it will be quite challenging for Beijing to achieve its ‘around 5%’ growth target unless it rolls out a sizable stimulus package,” Ting Lu, chief China economist at Nomura, said in a note this week. “Considering the respite on the trade war, Beijing might be under less pressure to introduce the necessary stimulus and reforms.”
Recent economic readings show growth remains patchy and lacklustre.
China’s new home prices were unchanged in April from a month earlier, official data showed on Monday, extending the no-growth trend to nearly two years despite policymakers’ efforts to stabilise the sector. Meanwhile, new bank loans also tumbled more than expected last month.
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