China’s central bank cut two key interest rates to historic lows on Tuesday, as Beijing intensifies efforts to stimulate its slowing economy amid ongoing trade friction with the United States.
The rate cuts come as China and the U.S. agreed last week to a temporary truce in their prolonged trade war, slashing a range of tariffs for a 90-day period. However, the easing of tensions arrives at a time when China’s economy remains under pressure from a sustained slump in domestic consumption, a deepening property sector debt crisis, and persistently high youth unemployment.
The People’s Bank of China (PBOC) announced that the one-year Loan Prime Rate (LPR)—the benchmark for business and household lending—would be lowered from 3.1% to 3.0%. The five-year LPR, which guides mortgage lending, was cut from 3.6% to 3.5%. Both rates had last been reduced in October, marking new record lows.
“These cuts will ease interest burdens for borrowers and lower the cost of new loans,” said Zichun Huang, China economist at Capital Economics. “However, modest rate cuts alone are unlikely to drive a significant rebound in loan demand or overall economic activity.”
Huang added that more rate reductions are likely this year as authorities strive to meet ambitious growth targets.
China has set a 2025 GDP growth goal of around 5%, a figure analysts consider challenging in the face of persistent structural and external headwinds. Nonetheless, the economy posted stronger-than-expected growth in the first quarter, expanding by 5.4% year-on-year, according to preliminary data.
Recent indicators have offered a mixed view of the recovery. Industrial production in April grew 6.1% from a year earlier, beating forecasts of 5.7%, but still down from the 7.7% gain recorded in March, according to data from the National Bureau of Statistics (NBS).
The NBS said the economy “withstood pressure and grew steadily in April,” while also noting “a complex situation of increasing external shocks and layered internal difficulties and challenges.”
Meanwhile, retail sales—a key indicator of consumer confidence—rose 5.1% year-on-year in April, falling short of Bloomberg’s 5.8% forecast and down from March’s 5.9% increase. Property data also pointed to continued weakness, with prices for new residential homes declining in 67 of the 70 cities surveyed, underscoring ongoing caution among consumers.