China has cut benchmark lending rates for the first time since October, 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 anticipated 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 announced that the one-year loan prime rate (LPR), a benchmark determined by banks, has been lowered by 10 basis points to 3.0 percent, while the five-year LPR was reduced by the same margin to 3.5 percent.
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 largest state-owned banks stated they have trimmed their deposit interest rates. Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China reduced deposit rates by 5-25 basis points (bps) for some tenors, according to rates displayed on the banks’ mobile apps.
Read more: U.S. and China ease trade tensions with 90-day deal, tariffs cut by over 100 percent
Strategic measures announced
The banks cut interest rates on time deposits by 5 bps to 0.05 percent, reduced rates on one-year time deposits by 15 bps to 0.95 percent, 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.
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 surrounding Sino-U.S. trade negotiations.
