China cuts rates for the first time in seven months

In China, the central bank has pulled a new tool out of its bag. Faced with a recovery that is slow to materialize, the authorities have lowered their key interest rates—a first since October. The one-year and five-year rates have each been cut by 10 basis points, to 3% and 3.5% respectively.

The major state-owned banks have followed suit, lowering their deposit rates by between 5 and 25 basis points, depending on maturity. This is a way of preserving their margins, which have been severely tested by the continuing decline in demand for credit.

The recovery remains fragile, with real estate prices frozen for two years, bank lending at record lows, and growth sluggish. The trade truce announced with the US offers some respite, but Beijing still seems reluctant to launch a large-scale stimulus program.

In this context, some economists are predicting a further rate cut by the summer. For Beijing, the equation remains delicate: supporting demand without creating new bubbles or further eroding the profitability of its banking sector.