Record rate cuts from China's central bank signal growth worries

The People's Bank of China said Tuesday that the one-year Loan Prime Rate (LPR), the benchmark for the most advantageous rates lenders can offer to businesses and households, would be cut from 3.1 percent to 3.0 percent

By AFP

Published: May 20, 2025 11:54:57 AM IST

A person walks past the headquarters of the People's Bank of China, in Beijing, China on May 7, 2025. Image: Tingshu Wang / Reuters

China's central bank on Tuesday cut two key interest rates to historic lows, as Beijing battles to stimulate its economy amid seesaw trade tensions with the United States.

Beijing and Washington have been locked in a bruising trade war but last week agreed to slash sweeping tariffs on each other's goods for 90 days.

The deterioration in trade ties has come as China's economy already faces persistent headwinds from a long-term domestic spending slump, a protracted debt crisis in the property sector and high youth unemployment.

The five-year LPR, the benchmark for mortgage loans, was cut from 3.6 percent to 3.5 percent, it said.

Both rates were last cut in October to what were then record lows.

"The rate cuts will reduce interest payments on existing loans, taking some pressure off indebted firms. It will also reduce the price of new loans," Zichun Huang, China economist at Capital Economics, said in a note.

"But modest rate cuts alone are unlikely to meaningfully boost loan demand or wider economic activity," she said.

"Today's reductions... probably won't be the last this year," Huang said.

China has set an annual GDP growth target of around five percent for 2025, an aim that analysts say is ambitious given the economic challenges it faces.

However, data for the first quarter was unexpectedly strong, with authorities announcing a 5.4 percent year-on-year expansion according to preliminary estimates.

Also read: China's factory output surpasses expectations despite tariff pressures

'Complex situation'

Official data on Monday showed China's factory output grew at a faster rate than expected last month, weathering the trade war with Washington.

Industrial production grew 6.1 percent year-on-year in April, according to figures published by the National Bureau of Statistics (NBS).

The reading was higher than the 5.7 percent forecast in a Bloomberg survey, but still lower than the 7.7 percent jump recorded for March.

The NBS said the economy "withstood pressure and grew steadily in April," but acknowledged a "complex situation of increasing external shocks and layered internal difficulties and challenges".

Other data showed retail sales—a key gauge of domestic demand—grew 5.1 percent year-on-year last month, short of the 5.8 percent growth forecast by Bloomberg.

The reading also marked a slowdown from March's 5.9 percent growth.

April saw the price of new residential properties contract in 67 out of 70 surveyed cities, reflecting continued consumer caution, according to the data.