China cuts key loan interest rates to record lows to cope with the impact of U.S. tariffs
The People's Bank of China (PBOC) lowered its benchmark loan ratio for the first time in seven months, a continued effort to mitigate the impact of U.S. tariffs on the economy.
The central bank lowered the 1-year and 5-year loan premium rate (LPR) by 10 basis points to 3.0% and 3.5%, respectively. These are based on the important monthly loan benchmarks submitted by China's 20 major commercial banks. A 1-year LPR is a reference for corporate and household loans, while a 5-year LPR is usually used as a benchmark for mortgage interest rates.
As part of a wider stimulus package launched earlier that month, the rate of slowdowns today has been widely expected. Prior to trade negotiations between Beijing and Washington in Switzerland, PBOC also lowered the seven-day reverse repurchase rate by 10 basis points and lowered the reserve ratio (RRR). Capital banks must hold reserves and reserves must hold 50 basis points.
China's benchmark stock index (Hang Seng Index) soared in Hong Kong, earning 1.3% of revenue at CEST 5:30. Meanwhile, the Chinese maritime renminbi slightly weakened the US dollar. However, analysts expect slowing down will have a smaller impact on their stock markets as more relaxation measures are needed to boost confidence.
“At profit margins, the slowdown may provide a smaller square wind for stocks, but it is widely expected, and it is clear that credit acquisition is not something that lets borrowers return now. Confidence is still weak and the government needs to do more to improve through the financial channels,” said David Scutt, APAC market analyst at Stonex, Australia, and APAC market analyst in Australia, Australia.
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China's economy grew by 5.4% in the first quarter of this year, exceeding expectations. However, trade uncertainty threatens its 5% annual growth target. Recent economic indicators paint a mixed picture of the world's second largest economy.
On Monday, data from the National Bureau of Statistics showed industrial output rose 6.1% year-on-year in April, surpassing the 5.5% forecast, reflecting despite growing trade pressure. In addition, despite a 21% drop in goods from the U.S. to the U.S., exports rose by 8.1% in April. Customs data show that exports to Southeast Asia have increased, and the EU helps offset the decline in trade with the United States.
However, retail sales rose only 5.1%, with insufficient expectations for a 5.5% increase. This underlines the continued weakness in domestic consumption due to ongoing economic uncertainty and household caution.
