China’s biggest banks cut deposit rates to boost consumer spending

China's biggest banks cut deposit rates to boost consumer spending

A reduction in deposit rates is one lever that policy makers can use to stimulate spending. The hope is that the lower rates will encourage consumers to spend or invest money instead of keeping their savings in the bank.

The move is a sign that consumer spending, a key driver of economic growth, remains sluggish. After China ended its Covid restrictions late last year and reopened the economy, there were expectations that pent-up demand would prompt consumers to start spending freely – but it has been difficult for many sectors of the economy. has not been played.

Larry Hu, chief China economist at finance firm Macquarie Group, said the change to deposit rates “paves the way for more easing measures.” He said the country’s central bank, the People’s Bank of China, could lower its benchmark lending rate in the coming months or take other steps to stimulate the economy. When China’s central bank lowers lending rates, reducing how much banks pay on deposits could relieve some financial pressure, he said.

China predicted that its economy would recover from one of the slowest years of growth in decades last year and that GDP would grow by about 5 percent in 2023. But the economic weakness remains.

In the first three months of the year, China’s economy grew by 4.5 percent, helped by a boom in spending on dining out and luxury goods. But the outlook appears less promising. China’s second quarter GDP figures are expected to be announced next month.

The youth unemployment rate is at a record high. The real estate market, an important sector of the economy for investment and job creation, continues to be in recession with little sign of recovery on the horizon.

Betty Rui Wang, senior China economist at Australian-based bank ANZ, said confidence in the economy was weak among Chinese households and private sector businesses. He said post-Covid demand helped propel the economy in the early part of the year, but there were signs that May was a turning point.

“It is losing momentum,” Ms. Wang said.

Many economists and analysts are expecting a series of new stimulus measures to be announced after next month’s meeting of the Politburo, the top decision-making body of the Chinese Communist Party.

Some new efforts are already underway. Commerce Ministry said on Thursday that it was start a campaign To encourage more automobile sales. Spending on cars, especially electric vehicles, has been a bright spot in recent years, helped by government subsidies and tax breaks. But as Beijing rolls back some of those measures, car sales have slowed.

The ministry said it would support policies to increase sales of new cars. It said, for example, that it would expand electric-vehicle charging infrastructure in rural areas to make the technology more practical in rural areas.

li yu Contributed to research.

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