China Lowers Lending Rates to Boost Its Weak Economy

In addition to last week’s easing measures, China slashed its benchmark lending rate and the mortgage reference by a larger margin on Monday as Beijing stepped up its efforts to revitalize an economic downturn caused by a property crisis and a resurgence of Covid-19 cases.

The People’s Bank of China cut its five-year loan prime rate by 15 basis points to 4.30% from 4.45%, and its one-year loan prime rate by 5 basis points to 3.65% from 3.7%, the first reduction since January and less than the 10 basis point drop projected by economists.

The moves are viewed as an effort to boost credit demand and stimulate an economy hampered by prolonged Covid lockdowns and property debt issues.

Last week, the Chinese central bank unexpectedly lowered the rate of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.75%, from 2.85%.

Goldman Sachs and Nomura downgraded their forecasts for China’s economic growth further, as a power supply shortage added more uncertainty to the outlook.

Due to weaker-than-expected economic data in July and near-term energy restrictions, Goldman Sachs reduced its forecast for GDP growth to 3% from 3.3%. Nomura trimmed its prediction from 3.3% to 2.8%.