China: Central Bank Announces Unexpected Prime Rate Cuts

After China’s 4.7% economic growth in June was deemed “insufficient” for a rapid post-covid recovery, the Central Bank of China (People’s Bank of China, PBOC) announced a series of surprise prime rate cuts for the short term in order to “encourage national economic growth.” According to a statement from the Chinese regulator, “the seven-day repo rate will fall 0.1% to 1.7 percent from 1.8%.” In addition, the one-year prime interest rate (LPR) moved from 3.45% to 3.35%, and the five-year rate, used as base for mortgage rates by many lenders, moved from 3.95% to 3.85%.

In the same statement, China’s central bank announced “a reduction in collateral requirements for its medium-term loans starting this month.”

According to Chinese analysts, the current cut in prime rates is part of the economic program approved at the recent third plenary meeting held last week by the Communist Party Central Committee, which focused on reforms and economic issues. Domestic consumption is declining, the real estate crisis is far from over, and many economists believe the country is on the verge of deflation. The trade war between China, the United States, and the European Union is heating up, jeopardizing Chinese technology exports, from electric cars to solar panels.