China’s Banks Chopped Benchmark Lending Rates

China’s Banks Chopped Benchmark Lending Rates
Reda Farran, CFA

6 months ago2 mins

What’s going on here?

Chinese banks did a bit of a pivot on Tuesday, cutting their benchmark lending rates for the first time since the dog days of last summer.

What does this mean?

China’s economy kicked off the year at a sprint, but recently, it’s been more of a leisurely stroll. Retail sales, industrial production, and infrastructure spending all dipped in May, which is why the Chinese central bank decided to trim both short-term and medium-term interest rates last week, marking the first cuts since August 2022.

Chinese banks followed suit on Tuesday, shaving their own benchmark lending rates. Both the one-year and five-year “loan prime rates” got a 0.1 percentage point trim, leaving them at 3.55% and 4.2% respectively. The game plan: to make borrowing cheaper and give the Chinese economy a much-needed adrenaline shot.

China rate cuts

Why should I care?

Zooming in: Real estate, real difficult.

Investors were crossing their fingers for a bigger, 0.15-percentage-point cut to the five-year rate. You see, that rate’s tied to mortgages, and a heftier cut could have given a greater boost to the country’s ailing property market. And this isn’t small beans we’re talking about: after all, the property sector accounts for a whopping 24% of China’s economy. So, many economists think that it’ll take more than this to breathe life back into the property market – like financial lifelines for cash-strapped developers or government incentives aimed at reducing mortgage down payments.

China property sector

The bigger picture: The crowd goes mild.

May’s economic slowdown has some economists adjusting their predictions. JPMorgan, UBS, and Standard Chartered all trimmed their 2023 growth forecasts to 5.5% or lower last week. And not to be outdone, Goldman Sachs joined the choir over the weekend, lowering its own forecast from 6% to 5.4%. But let’s not lose perspective: these new estimates still outstrip China’s official 5% growth target – its least ambitious one in over thirty years.

China growth forecasts


All the daily investing news and insights you need in one subscription.

Learn More

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG