PBOC cuts lending rates as Beijing pushes growth
Make us a preferred source
Make us a preferred source on Google
The news: The People’s Bank of China (PBOC) cut a key benchmark lending rate on Tuesday for the first time since October as the country works to boost its flagging economy against the backdrop of trade uncertainty.
The numbers: The PBOC trimmed the 1-year loan prime rate (LPR) to 3.0% from 3.1%, and the 5-year LPR to 3.5% from 3.6%.
The context: The rate cuts will lower the cost of borrowing for companies and households, incentivising spending and investment as the government seeks to improve weak consumer sentiment.
Some of China’s largest lenders also cut deposit rates on Tuesday in efforts to preserve profitability and drive more spending. Lenders including Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China, Bank of China Ltd. and China Merchants Bank Co. trimmed rates across maturities on Tuesday. The deposit rate reductions should see smaller lenders follow suit with similar cuts.
The rate cuts affecting 300 trillion yuan ($64.8 trillion) of deposits came as government measures to stimulate the world’s second largest economy have put even greater pressure on bank profits. Earlier in May, the country reduced its policy lending rate as it worked to support its economy by countering impacts brought on by its trade war with the United States.
What they said: Marco Sun, chief financial market analyst at MUFG Bank (China), told Reuters that the dual rate cuts were aimed at boosting credit lending and stimulating consumption. "The central bank is likely to switch to a wait-and-see approach in coming months unless external geopolitical risks deteriorate enough to extinguish hopes that the economy can stabilise," Sun said.
