Major Chinese banks cut deposit rates as efforts to prop the economy grow
China's biggest banks have cut interest rates on deposits in an effort to support the struggling property sector and the country's faltering economy.
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Posted 9/1/2023, 12:37:53 AM
reuters.com
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China's central bank has cut the main benchmark interest rate in an attempt to address falling apartment prices, weak consumer spending, and broad debt troubles, but the reduction was smaller than expected, signaling the potential ineffectiveness of traditional tools to stimulate the economy.
China's central bank has cut its one-year loan prime rate for the second time in three months as the economy struggles to recover from the pandemic, with challenges including a property crisis, falling exports, and weak consumer spending.
China's decision not to cut its five-year loan prime rate to revive the real estate sector and boost the economy is expected to have a limited impact and further weaken confidence, according to economists.
China's big five state-owned banks are expected to see a decline in revenue and narrower net interest margins as they face challenges such as low credit demand and pressure to support the economy amid a debt crisis in the property sector.
Chinese shares dropped as banks in the country cut interest rates less than expected, with the benchmark one-year loan prime rate being lowered by 0.1 percentage point to 3.45%.
The end of low interest rates has created a divide between savers who benefit from higher rates and borrowers who face challenges with increased loan costs, affecting various sectors including housing, auto loans, and credit cards.
China's economy is at risk of entering a debt-deflation loop, similar to Japan's in the 1990s, but this can be avoided if policymakers keep interest rates below a crucial level to stimulate economic growth.
The Bank of England may have to increase interest rates if the US Federal Reserve decides to raise rates to cut inflation, in order to prevent the pound from weakening and inflation from rising further.
China's central bank will cut the amount of foreign exchange reserves required for financial institutions, in an effort to slow the decline of the yuan.
Emerging-market central banks are resisting expectations of interest rate cuts, which is lowering the outlook for developing-nation bonds, as central banks in Asia and Latin America turn hawkish in response to the "higher-for-longer" stance taken by the Federal Reserve, currency pressures, and the threat of inflation.
Central banks across major developed and emerging economies took a breather in August with lower interest rate hikes amid diverging growth outlooks and inflation risks, while some countries like Brazil and China cut rates, and others including Turkey and Russia raised rates to combat currency weakness and high inflation.
Poland's central bank unexpectedly cuts its main interest rate by 75 basis points to 6.00% ahead of October elections, causing the zloty currency to plummet and raising concerns about inflationary risks.
Five major state banks in China, including ICBC and China Construction Bank, will lower interest rates on existing mortgages for first-home loans as part of support measures to aid homebuyers and stabilize the property sector.
China's measures to support the property sector are lowering monthly mortgage payments for homeowners but also reducing interest earnings on bank deposits, highlighting the challenge of promoting consumer spending in a weak economic climate.
The Federal Reserve is expected to cut interest rates by about one percentage point next year as economic growth slows and unemployment rises, according to chief economists at major North American banks.
China's economy is facing challenges due to its real estate crisis and high levels of mortgage debt, but the government is hesitant to provide fiscal stimulus or redistribute wealth, instead aiming to rely on lending to avoid a potential recession. Banks have cut interest rates and reserve requirements, but it is unlikely to stimulate borrowing. However, economists predict that policymakers will intensify efforts in the coming months, such as changing the definition of first-time home buyers and implementing property easing measures, to address the economic downturn.
Chinese commercial banks are concerned that the central bank's recent cut to mortgage rates will not be enough to prevent a surge in mortgage prepayments, which could squeeze bank margins.
High mortgage rates have frozen the US housing market, but experts predict that the Federal Reserve may cut interest rates in the next 12 to 18 months, potentially leading to a decline in mortgage rates.
The Bank of Japan is expected to maintain ultra-low interest rates and reassure markets that monetary stimulus will continue amidst China's economic struggles and the global impact of US interest rates.
The Federal Reserve's decision to raise interest rates will continue to burden borrowers with higher bills on credit cards, student loans, car loans, and mortgages, while savers are rewarded with higher rates on savings accounts and certificates of deposit.
Central banks, including the US Federal Reserve, European Central Bank, and Bank of England, have pledged to maintain higher interest rates for an extended period to combat inflation and achieve global economic stability, despite concerns about the strength of the Chinese economy and geopolitical tensions.
Portugal's government has announced that banks must reduce mortgage interest rates for borrowers struggling with rising interest rates, by discounting the benchmark six-month Euribor rate by 30%.
BlackRock's Rick Rieder predicts that the Federal Reserve will cut interest rates next year due to a slowing economy, following the Fed's recent pause on rate hikes.
The Bank of England has decided to halt interest rate rises due to unexpected inflation slowdown, while housing markets in major global economies, including the US, Germany, and the UK, are showing signs of slowing down. Additionally, there have been developments in various countries' economic outlooks and key interest rates.