The People’s Bank of China (BPC) has met market expectations and has cut the benchmark interest rates for one- and five-year bank loans on Tuesday, after lowering short- and medium-term refinancing rates last week , in order to add new momentum to an economic recovery that is losing momentum after the reopening at the end of last year.

As announced this Tuesday by the Chinese central bank, the interest rate applied to loans with a maturity of one year will be 3.55% instead of the 3.65% set in August 2022, while for loans to five years, of reference for mortgages, will drop from 4.30% to 4.20%.

“The PBOC has cut its policy rates for the first time since last summer, reflecting growing concerns about the health of China’s recovery,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

In this sense, the expert stresses that “by themselves, cuts of 10 basis points are too small to make a big difference in monetary conditions”, but recalls that the Chinese central bank tends to use changes in rates “as signaling tool”, while the heavy lifting is done by other tools, such as adjustments in reserve requirements and bank loan installments.

“The latest round of rate cuts suggests that these tools will also be implemented,” says the analyst.

The cut in benchmark rates for one-year and five-year loans announced Tuesday caps the first round of PBOC rate moves since summer 2022.

Last week, the institution lowered the interest rate applied to the one-year loan facility by 10 basis points, to 2.65%, after also announcing a 10 basis point cut in the interest rate applied to reverse repurchase (‘repo’) operations in the market with a term of seven days, situating the short-term reference at 1.90%.

Likewise, Goldman Sachs analysts have recently revised downward their economic growth forecast for China in 2023, limiting the expected expansion of the Asian giant to 5.4% from the previously estimated 6%. The Chinese government’s official growth target is 5%, the lowest in decades, after the economy grew just 3% in 2022.