China Lowers Loan Rates, Bitcoin Stable Above $26,600

Key Points:

• On Tuesday, China’s central bank reduced key interest rates on loans made by the state-controlled banking sector.
• This is the clearest indication yet of the Chinese government’s and business sector’s growing fear that the country’s economy is stagnating.
• Bitcoin was less volatile after the news.

China’s central bank slashed two benchmark interest rates on Tuesday, after numerous such moves in recent days in an effort to counteract the world’s second-largest economy’s post-Covid growth slowdown.

According to the PBoC, the one-year Loan Prime Rate (LPR), which acts as a benchmark for corporate loans, was dropped from 3.65 percent to 3.55 percent, while the five-year LPR, which is used to price mortgages, was reduced from 4.3 percent to 4.2 percent.

The LPR establishes the interest rate that commercial banks charge their best customers and acts as a standard for home and business lending. Most new and ongoing loans are affected by the one-year rate, but the five-year rate affects the price of longer-term loans, such as mortgages.

While the interest rate fall was minor since practically all of the country’s business lending and mortgages are tied to the two rates, the reductions might have an impact on the overall pace of economic development.

The policy softening actions are the most important yet by policymakers attempting to re-energize growth after recent signs indicated that the hoped-for robust comeback after years of lockdowns was running out of steam.

Other customs data revealed that exports dropped 7.5% year on year in May, the worst drop since January, as manufacturers struggled to find buyers overseas amid a weakening global economy.

China’s efforts contrast with those of the United States and other Western nations, which have been compelled to raise interest rates while shrinking the money supply in order to keep inflation under control.

On Thursday, officials decreased the medium-term lending facility (MLF) rate, which is the interest rate on one-year loans to financial institutions, by 10 basis points to 2.65 percent.

The PBoC also announced a 237 billion yuan ($33 billion) medium-term loan facility for banks in order to keep acceptable and adequate liquidity in the banking sector.

Some cryptocurrency analysts believe that further Chinese stimulus might compensate for the hawkish biases of the US Federal Reserve, the European Central Bank, and others, ultimately driving risk assets higher.

Bitcoin (BTC) traded little changed on Tuesday, despite China’s first decrease in benchmark lending rates in ten months failing to raise sentiment in conventional markets.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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