People’s Bank of China cuts interest rates by 25 basis points

The People’s Bank of China has just announced that they would cut interest rates on both 1-year deposits and lending side by 25 basis points

The latest benchmark 1-year deposit rate will be at 3.25% after the cut, while the benchmark 1-year lending rate will be at 6.31% after the cut. Banks are also allowed to offer discount in lending of up to 20% of the benchmark rate, while deposit rates can be offered at a 10% premium to the benchmark rate.

Although both 1-year deposit and lending rates are cut by 25 bps, 2-year deposit rate is reduced by 30 bps, 3-year deposit rate is reduced by 35 bps, and 5-year deposit rate is reduced by 40 bps, while lending rates across maturities are cut by 25 bps. This asymmetry in rate cutting is by no means helping the rebalancing towards consumption, which requires higher deposit rates (thus higher disposable income for household), thus we are not particularly thrilled by such decision.

The chart below shows the 1-year deposit and lending rates.

Source: People’s Bank of China

As the People’s Bank of China cut rates just 2 days before the weekend with most of the macro data are due to be published, we suspect that the pre-emptive interest rates cut could signal poor data releases. Earlier, we have already speculated that inflation may plunge rather significantly on the back to falling food prices. This will make the coming weekend very interesting.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.