China cuts interest rates in battle to hit year-end growth target

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China unveiled some of its biggest cuts to benchmark lending rates in years as the government stepped up efforts to reboot the economy and hit its year-end target of about 5 per cent GDP growth.

The People’s Bank of China said on Monday that the country’s one-year loan prime rate would be reduced to 3.1 per cent from 3.35 per cent, the biggest reduction on record, and the five-year LPR would be cut to 3.6 per cent from 3.85 per cent.

The rates have acted as the underlying reference for consumer or business loans and mortgages, respectively, since 2019. They were last cut in July and follow a blitz of easing measures announced in late September that mark the government’s most forceful intervention since the pandemic.

Widely anticipated against that backdrop, Monday’s cuts underscore growing urgency among policymakers to restore confidence in an economy grappling with a property slowdown, deflationary pressures and weak consumer demand.

“Today’s move echoes our view that the PBoC will be cutting rates more decisively,” said Becky Liu, head of China macro Strategy at Standard Chartered.

The September package, which included reduced mortgage rates and support for the stock market, came amid mounting pressure on policymakers to hit a GDP growth target of about 5 per cent for 2024.

Economists have widely called for more intervention, including fiscal stimulus and more support for households. China’s latest GDP figures on Friday showed growth of just 4.6 per cent in the third quarter.

“A meaningful turnaround in economic growth would require a larger fiscal response,” said Zichun Huang at Capital Economics, in response to the cuts.

Monday’s cuts were at the upper end of a range signalled by Pan Gongsheng, PBoC governor, on Friday when he reiterated the prospects of further easing before the end of the year.

In September, he announced cuts to China’s seven-day repo rate, another lending benchmark. The reserve requirement ratio, which influences bank lending, was cut 50 basis points that month, leaving the average rate across banks at 6.6 per cent. It could be cut by another 25-50 basis points.

Liu at StanChart pointed to a September statement from the politburo, China’s top leadership group, on the need to “implement forceful rate cuts”, which were “the first time ever for such precise guidelines on central bank interest rates”.

UBS on Monday raised its full-year target for China’s GDP growth to 4.8 per cent. “Both household and corporate confidence may be helped by expectations of more policies and property market stabilisation,” said the bank’s chief China economist Tao Wang.

China’s CSI 300 index of Shanghai- and Shenzhen-listed shares rose 0.3 per cent in volatile early trading on Monday. The CSI 2000 index of small-cap companies outperformed with a 2.8 per cent gain. Hong Kong’s Hang Seng index lost 1.2 per cent.

Additional reporting by Wang Xueqiao in Shanghai