China’s central bank today lowered the benchmark rate for medium-term loans, a move anticipated by markets and aimed at giving a further boost to the sluggish growth of the world’s second-largest economy.
The interest rate for one-year loans to financial institutions was cut from 2.75 per cent to 2.65, the People’s Bank of China said.
The development of this rate generally serves as a benchmark for the rate charged on loans given by banks to individuals, businesses and on home loans. The adjustment of this rate is decided on the 20th of each month and is closely monitored by the markets.
The measure should make it possible to reduce the funding costs of commercial banks and encourage the granting of more credit on more favourable terms to support the Chinese economy.
The last reduction of this rate took place in August 2022.
The measure should make it possible to inject 237 billion yuan (30.6 billion euros) into the Chinese economy, according to a statement from the central bank.
To the surprise of analysts, the Chinese central bank had already reduced on Tuesday the main interest rate for short-term (seven-day) cash loans to commercial banks.
The expected economic recovery, following the lifting at the end of 2022 of restrictions imposed due to the covid-19 pandemic, has lost momentum in recent weeks.
China has posted lower-than-expected economic indicators in recent days.
Year-on-year inflation in the country was close to zero in May, while the producer price index, which measures ex-factory prices, had the biggest drop since 2016, signs of weak demand and a complicated business environment.
Exports from the Asian giant, historically a growth lever for the country, contracted 7.5 per cent in May compared with the same month a year earlier.
To stimulate consumption and discourage saving, China’s major state-owned banks cut rates on a range of deposit products last week.
The Chinese government has set a growth target of around 5 per cent this year, a rate that would be one of the weakest in decades for the Asian giant.
