China has reduced its lending rates: the one-year loan prime rate (LPR) is now 3.1%, down from 3.35%, and the over-five-year LPR is down from 3.85% to 3.6%. This is the third rate cut this year, aimed at lowering financing costs and boosting credit demand, consumption, and investment.
These cuts were larger than expected, with analyst Wu Bin noting the government’s commitment to supporting economic recovery. Recently, the central bank also lowered the interest rates for reverse repos and reduced the reserve requirement ratio (RRR) for banks.
Major banks have started to lower deposit rates accordingly. The central bank may further reduce the RRR by 0.25 to 0.5 percentage points in 2024, depending on liquidity needs.
Analysts see these actions as part of coordinated efforts to stabilize financial markets and expand economic openness. Wang Qing, a chief economist, believes these rate cuts will help reduce borrowing costs for businesses and new mortgages, benefiting millions of homeowners.
These measures follow a recent Communist Party meeting emphasizing the need for impactful interest rate cuts and real estate market support. Wang anticipates that these LPR cuts will enhance economic growth and stabilize the property market, helping China meet its economic goals for the year.
(Cover: Residential buildings in Jin’an District of Fuzhou, Fujian Province, August 6, 2023./ CFP)
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