The People’s Bank of China (PBOC) has made its first reduction in benchmark lending rates in seven months, decreasing the 1-year and 5-year loan prime rates (LPR) by 10 basis points to 3.0% and 3.5% respectively. This decision comes as an effort to ease the impact of US tariffs on China’s economy.
The reduction was part of a broader stimulus package announced earlier this month and followed the lower seven-day reverse repurchase rate by 10 basis points. The PBOC also decreased the reserve requirement ratio (RRR), the amount of capital that banks must reserve, by 50 basis points.
As a result, China’s benchmark stock index, the Hang Seng Index, saw a surge of 1.3% at the market opening in Hong Kong. However, analysts predict that the rate cuts will have only a minor impact on the stock markets, as confidence remains weak and more easing measures are needed.
China’s economic data is mixed, with significant growth in the first quarter of the year, but trade uncertainties threaten its 5% annual growth target. Industrial output, exports, and retail sales all saw increases, but at varying degrees. On a more positive note, the unemployment rate declined to 5.0% in April.
Several global investment banks have upgraded their forecasts for China’s economic growth, following the agreement between Beijing and Washington to pause tariffs for 90 days. Goldman Sachs revised its growth forecast for China to 4.6% from 4%, while Nomura revised its forecast for second-quarter GDP growth to 4.8% from 3.7%. However, most analysts believe that China is unlikely to meet its initial 5% growth target.
Source: https://www.euronews.com/business/2025/05/20/china-cuts-key-lending-rates-to-record-lows-to-counter-the-impact-of-us-tariffs
