China central bank says cuts two key rates to support economy

The People's Bank of China has cut two benchmark interest rates in a bid to boost sluggish growth after the post-Covid recovery was brief and less robust than expected. Photo: ADEK BERRY / AFP/File
Source: AFP

China's central bank on Monday cut two benchmark interest rates in a bid to boost lagging growth in the world's second-largest economy.

The one-year LPR, which constitutes the benchmark for the most advantageous rates that banks can offer to businesses and households, was cut from 3.45 percent to 3.35 percent. This rate had already been lowered in August 2023.

The five-year rate, the benchmark for mortgage loans, was lowered from 3.95 percent to 3.85 percent. This is its second reduction this year after a trim in February.

Closely followed by the markets, these two rates are at their historic lows and the cuts come days after of a key ruling Communist Party meeting in Beijing.

This decision, anticipated by some economists, is supposed to encourage commercial banks to grant more credit and at more advantageous rates.

The measure is expected to indirectly support activity against a backdrop of economic slowdown.

The Asian giant is in the grip of an unprecedented crisis in its vast real estate sector, continued weak consumption and a high youth unemployment rate, while geopolitical tensions with Washington and the European Union threaten its foreign trade.

A year and a half after the lifting of health restrictions which penalised economic activity, the much-hoped-for post-Covid recovery was brief and less robust than expected.

In the second quarter, economic growth fell sharply year-on-year -- rising 4.7 percent -- according to official figures published last Monday.

This pace was below analyst expectations and the 5.3 percent expansion in the first quarter. It is also the weakest since the beginning of 2023, when China lifted its draconian restrictions against Covid-19, which were penalising activity.

Furthermore, retail sales only increased by 2 percent year-on-year in June.

The slowdown in this key indicator reflects continued sluggish consumption.

An important meeting of the Chinese Communist Party (CCP), the "Third Plenum", focused on major economic guidelines, was held last week in Beijing around President Xi Jinping.

Chinese leaders have called for "eliminating risks" in the economy, as well as stimulating consumption, but without yet proposing concrete measures to revive sluggish growth.

Source: AFP