The widely expected rate cuts are aimed at stimulating consumption and loan growth as the world’s No.
The lending rate cut was announced just after five of China’s biggest state-owned banks said they had trimmed their deposit interest rates.
Marco Sun, chief financial market analyst at MUFG Bank (China), said the rate cuts were aimed at boosting credit lending and stimulating consumption.
Nicholas Zhu, an analyst at Moody’s, expects a prolonged period of low interest rates in China.
Major Chinese banks cut deposit rates in October and July last year as their profits came under pressure after the PBOC lowered lending rates.
BEIJING/SHANGHAI (Reuters) — As authorities attempt to loosen monetary policy to help protect the economy from the effects of the Sino-U.S. policy, China lowered benchmark lending rates on Tuesday for the first time since October, while major state banks also lowered deposit rates. A. war of commerce.
The rate cuts, which were widely anticipated, are intended to boost loan growth and consumption as the world’s No. Even as the economy slows, commercial lenders’ declining profit margins are safeguarded.
Nevertheless, the modest magnitude of the rate cuts was indicative of the gradual pace of monetary easing in recent years as well as what analysts perceived to be some hesitancy on the part of policymakers to take more drastic measures as they negotiate the trade war with the United States.
The People’s Bank of China announced that the benchmark one-year loan prime rate (LPR), which is set by banks, had been lowered by 10 basis points to 31%. The five-year LPR had also been lowered by the same amount to 31%.
While the five-year rate affects mortgage pricing, the majority of new and existing loans in China are based on the one-year LPR. Since China disrupted the LPR mechanism in 2019, both rates are currently at their lowest point.
Shortly after five of China’s largest state-owned banks announced that they had lowered their deposit interest rates, the lending rate cut was announced.
China’s Industrial and Commercial Bank (IDCBY, 601398). Agribusiness Bank of China (601288), SS. China Building Bank (601939), SS. BACHF, 3988; SS, CICHY; and Bank of China. For certain tenors, HK) lowered deposit rates by 5–25 basis points (bps), in accordance with rates displayed on the banks’ mobile applications. The banks intended to lower their deposit rates starting on Tuesday, according to a Monday Reuters report.
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The decreases in deposit rates ought to serve as a model for similar reductions by smaller lenders.
The rate decision caused banking shares to slightly increase, with the CSI Bank Index rising 0.3 percent.
The rate cuts were intended to increase credit lending and stimulate consumption, according to Marco Sun, chief financial market analyst at MUFG Bank (China).
Sun stated, “Unless external geopolitical risks worsen to the point where hopes that the economy can stabilize are extinguished, the central bank is likely to shift to a wait-and-see approach in the coming months.”.
RECOVERY HAS NOT CHANGED.
Before the U.S.-China talks, PBOC Governor Pan Gongsheng and other financial regulators announced a number of measures, including the rate cuts. S. . that caused their trade war to de-escalate earlier this month in Geneva.
Despite uncertainty surrounding Sino-U, after Beijing and Washington agreed to a 90-day tariff pause, international investment banks are increasing their projections for China’s economic growth this year. S. discussions about trade.
“Unless Beijing implements a substantial stimulus package, we still think it will be difficult for Beijing to meet its ‘around 5 percent’ growth target,” Ting Lu, chief China economist at Nomura, stated in a note this week.
There may be less pressure on Beijing to implement the required reforms and stimulus given the lull in the trade war. “.”.
Current economic data indicates that growth is still erratic and unimpressive.
Despite policymakers’ efforts to stabilize the sector, China’s new home prices remained unchanged in April compared to the previous month, according to official data released on Monday. This continued the trend of no growth for almost two years. In the meantime, last month’s new bank loans fell more than anticipated.
Under pressure, banks make money.
According to ANZ senior China strategist Xing Zhaopeng, Tuesday’s rate cuts were a preventative measure.
Xing stated that he expected another rate cut by the end of July, with the goal of “repairing commercial banks’ net interest margin and getting ready for the future.”.
Moody’s analyst Nicholas Zhu predicts that China will experience low interest rates for a long time.
Because banks are expected to support the real economy, Zhu said, “the reduction in deposit costs partially mitigates the impact of lower asset yields, which remain under pressure.”.
Due to pressure on their profits following the PBOC’s reduction of lending rates, major Chinese banks lowered deposit rates in October and July of last year. In 2023, the banks had previously lowered deposit rates three times.
The banking industry is being impacted by a prolonged economic downturn, and the Big Five lenders reported lower profits and narrower margins on their first-quarter earnings.
According to official data, the net interest margin of commercial banks, a crucial indicator of profitability, fell to a record low of 1 point 43 percent in the first quarter of this year.
According to a note from analysts at China International Capital Corp, net interest margins are predicted to drop another 10 to 15 basis points this year as banks compete fiercely to entice consumers with low-cost loans while credit demand is still weak.
Lincoln Feast edited the story; Winni Zhou, Ziyi Tang, and Liz Lee reported. ).
