China Cuts Interest Rates To Stimulate Economic Growth

China has lowered interest rates for the first time in seven months as the government in Beijing tries to stimulate the country’s struggling economy.

The People’s Bank of China trimmed its one-year loan prime rate to 3.0% from 3.1%, and its five-year rate to 3.5% from 3.6%.

While incremental, the interest rate reductions are the first since the central bank’s 25-basis point cut last October.

The benchmark lending rates — normally charged to banks’ best clients — are calculated monthly based on proposed rates submitted to China’s central bank.

The one-year rate influences corporate and most household loans in China, while the five-year rate serves as a benchmark for mortgage rates.

The rate cuts come as a slew of state-backed commercial banks reduce their deposit rates by as much as 25-basis points to protect their net interest margins.

Many analysts expect China’s central bank to continue lowering interest rates this year, with some forecasting a 40-basis point cut by year’s end.

China’s economy has struggled coming out of the Covid-19 pandemic, and Beijing has been trying to bolster it.

Other recent economic stimulus measures announced by Beijing have included reductions to the lending rates and the amount of cash that banks must hold in reserve.

Interest rates charged on home mortgages have also been lowered by 25-basis points.

China’s yuan currency has strengthened 2.8% against the U.S. dollar since it hit a record low in April of this year, according to market data.

China’s government has set an ambitious growth target of 5% for the economy this year.