China keeps slashing lending rates as authorities ramp up their efforts to stave off a sharp economic slowdown.
The People’s Bank of China on Thursday cut its one-year loan prime rate by 10 basis points to 3.7%, the second cut to the rate in a month. December’s cut was the first time the central bank touched the benchmark lending rate since April 2020, when China was in the throes of the initial coronavirus outbreak.
The central bank also trimmed its five-year loan prime rate by five basis points to 4.6%, the first cut to that rate since April 2020. China’s loan prime rate is the rate at which commercial banks lend to their best customers, and it serves as the benchmark rate for other loans. The one-year maturity influences new and outstanding loans that must be paid back in a shorter time frame. The five-year one, meanwhile, usually serves as a reference for mortgages.
The central bank’s decision to cut both rates is the latest in a series of steps that China has taken to loosen monetary policy, as authorities contend with a deepening slump in the real estate market and slowing economic growth. China’s GDP expanded 8.1% in 2021, according to government figures published earlier this week, but the pace slumped in the final quarter. Analysts expect the country could struggle even more this year, as the world’s second largest economy tries to stave off coronavirus outbreaks with its strict zero-Covid policy, and as the property crisis continues to fester.
Even Chinese President Xi Jinping — not normally one to remark publicly on economic policy — called on Western central banks earlier this week to avoid hiking interest rates too fast to fight inflation, as his country’s policies head in the opposite direction.