6 months ago • 2 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.
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.
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.
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