China's cut of key interest rates will enhance the financial support for the country's real economy, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Company on Tuesday.
China on Tuesday cut market-based benchmark lending rates, with the one-year loan prime rate (LPR) down to 3 percent from the previous reading of 3.1 percent. The over-five-year LPR, on which many lenders base their mortgage rates, was lowered to 3.5 percent from 3.6 percent.
"The drop of the over-five-year LPR, coupled with a 0.25 percentage point reduction in the interest rate for housing provident fund loans this year, has further alleviated the interest burden for mortgage borrowers. These policies are conducive to enhancing people's consumption capacity and supporting the expansion of domestic demand," Dong said.
China's major commercial banks also announced on Tuesday reductions in deposit interest rates, the first cuts this year.
The one-year fixed-term deposit interest rate was lowered by 15 basis points to 0.95 percent, announced by the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank,the Agricultural Bank of China, and the China Merchants Bank.
Dong said the reduction in deposit rates came after the banks made comprehensive consideration about factors including market interest rate trends and deposit supply and demand.
The reduction in liability costs is the basis for banks to reduce loan interest rates. A moderate reduction in deposit rates will help reduce the overall financing costs of society and support the economic recovery of the country, according to Dong.
"A reasonable net interest margin level is not only the foundation for banks to serve the real economy, but also the root for preventing and defusing financial risks and maintaining financial security. A moderate reduction in deposit interest rates will help banks maintain a relatively reasonable net interest margin level and will also help enhance the sustainability of banks in serving the real economy and their ability to prevent and defuse financial risks," he said.
Interest rates cut to enhance financial support for China's real economy: expert
