BEIJING — The People’s Bank of China (PBOC), the country’s central bank, cut two of its benchmark interest rates to the lowest levels in history on Tuesday (20/5), in an effort to stimulate an economy under pressure from a trade war with the United States and weak domestic demand.

The move came just days after Beijing and Washington agreed to suspend trade tariffs for 90 days, following prolonged tensions that have further worsened China’s economic conditions.

The PBOC lowered the one-year Loan Prime Rate (LPR) from 3.1% to 3.0%. The LPR is the interest rate that major Chinese banks offer their best clients—typically large corporations and well-regarded borrowers.

The rate is determined monthly based on the average lending rates submitted by 18 selected banks and is published by the National Interbank Funding Center under the oversight of the PBOC.

Meanwhile, the five-year LPR, which serves as a reference for mortgage lending, was also cut from 3.6% to 3.5%.

This marks the first rate cut since last October, when the benchmark was also reduced to what had been the lowest level at the time.

According to Zichun Huang, an economist at research firm Capital Economics, the cut will help reduce the interest burden on existing loans, easing pressure on indebted firms and lowering the cost of new borrowing.

However, Huang also cautioned that a moderate rate cut alone is unlikely to significantly boost credit demand or revive broader economic activity.

He added that Tuesday’s rate cut is likely not the last for this year.

China has set a 2025 GDP growth target of around 5%. The goal is seen as ambitious by several analysts, given the structural challenges the country is facing, including weakening consumer spending, a property sector debt crisis, and high youth unemployment.

Nevertheless, first-quarter data showed that GDP grew 5.4% year-on-year, according to preliminary estimates from Chinese authorities.

Official data released on Monday indicated that China’s industrial production in April grew 6.1% year-on-year, exceeding Bloomberg analysts’ forecast of 5.7%. However, it still fell short of the 7.7% growth recorded in March.

The National Bureau of Statistics (NBS) stated that the economy remained resilient and grew steadily in April, but acknowledged an increasingly complex situation due to rising external shocks and multiple domestic challenges.

Meanwhile, retail sales—a key gauge of domestic demand—grew 5.1% year-on-year in April, below the 5.8% forecast and also down from 5.9% in March.

New home prices in 67 of 70 major cities also fell in April, signalling persistent consumer caution amid ongoing economic uncertainty. (EF/ZH)