China's economy requires incentives: the Central Bank lowers key interest rates

The People's Bank of China has decided to reduce key refinancing rates as part of efforts to support the national economy. Thus, the rate on annual loans was reduced from 3.1% to 3%, and on five-year loans – from 3.6% to 3.5%, which corresponds to a reduction of 10 bps for both categories. This step was the first reduction in key interest rates since October last year.

Such a decision, experts say, was expected, especially in the context of the escalated trade conflicts with the United States, which intensified after the appointment of Donald Trump as president. China's economy continues to show extremely slow recovery rates after the COVID-19 pandemic, as indicated by recent retail sales data for April. In addition to the NBK, the country's largest financial institutions have also reduced rates on a number of deposits by 5-25 bps.

Economists warn that in order to achieve the goal of 5% GDP growth this year, the Chinese authorities will probably have to continue to take additional incentive measures. According to analyst Tin Liu, achieving the ambitious goal of achieving this level of economic growth will require significant efforts. Without large-scale incentive initiatives, Beijing risks not meeting its targets.