China took a significant step on Tuesday to invigorate its economy by trimming its key lending rates by 10 basis points. This move by Beijing comes as rising trade tensions threaten to undermine economic progress.
The People’s Bank of China reduced the one-year loan prime rate (LPR) from 3.1% to 3.0% and adjusted the five-year LPR from 3.6% to 3.5%. This adjustment represents the first rate cuts since the central bank made a 25-basis-point reduction in October, highlighting Beijing’s increased efforts to bolster economic resilience.
These benchmark lending rates, generally extended to preferred clients of banks, are recalibrated monthly based on rates suggested by a selection of commercial banks to the People’s Bank of China. The one-year LPR affects corporate and most consumer loans, whereas the five-year LPR is crucial for mortgage rates.
Contributing to this environment, several state-supported commercial banks slashed their deposit rates by up to 25 basis points earlier on the same day, aiming to safeguard their net interest margins. This move laid the groundwork for the central bank to implement these pivotal interest rate cuts.
