5/12/2015
By Jennifer Coombs

On May 10th, the People’s Bank of China announced that it has cut the benchmark lending rate by 25 basis points to 5.1% for the third reduction since November 2014 thanks to lower economic growth and declining property prices. The central bank also reduced one-year benchmark deposit rates by 25 basis points to 2.25%. The Chinese economy is still facing massive downward pressure, overall domestic prices remain low, and real interest rates are still above historical averages. In Q1-2015, the Chinese economy expanded by 7.0% which was down from a 7.3% increase experienced in the prior three months. This is the lowest quarterly growth rate since Q1-2009 due to a major slowdown in manufacturing and property investment. The annual rate of inflation has been below 2.0% since September while the producer price index (PPI) has declined by 4.6% in April and has been on the decline since March 2012. Home prices in China were on decline for eight straight months until a slight increase of 0.21% in January 2015, but they have since returned to the decline from February onward. The chart below shows the changes in the Chinese benchmark interest rate; this news marks the lowest interest rate recorded in China in the last fifteen years.

Jennifer Coombs
Wall Street Strategies

Add a Comment!