China cuts main interest rate as economic recovery fizzles out

China’s central bank has cut its main benchmark lending rates for the first time in 10 months, in its latest effort to bolster growth as the world’s second largest economy falters.

China’s central bank has cut its main benchmark lending rates for the first time in 10 months, in its latest effort to bolster growth as the world’s second largest economy falters.

The rate cuts come as Wall Street banks, including Goldman Sachs, slash their forecasts for China’s economy. Goldman said on Sunday that the recovery sparked by the country’s post-Covid reopening appeared to have “fizzled out” in the second quarter as it downgraded its forecast for growth this year to 5.4% from 6%.

The People’s Bank of China on Tuesday trimmed its one-year loan prime rate (LPR) by 10 basis points from 3.65% to 3.55%, and reduced the five-year rate by the same margin to 4.2%. The cuts follow reductions in other interest rates last week.

The LPR sets the interest that commercial banks charge their best clients, and serves as the benchmark for household and corporate lending. The one-year rate affects most new and outstanding loans, while the five-year rate influences the pricing of longer term loans, such as mortgages.

This is the first time the PBOC has cut both LPR rates since August 2022, when renewed Covid lockdowns and a deepening property downturn were pummeling the economy.