The People’s Bank of China (PBOC) reported new loans from China’s banks advanced significantly in June. The rise in new loans comes as the PBOC reduced its key interest rates to help support China’s relatively lacklustre economic activity. It was a positive sign that the first rate reduction in almost a year helped increase new loans.?
- China’s banks gave out CNY3.05 trillion (C$561.7 billion) in new loans in June, up from CNY1.36 trillion (C$250.5 billion) in May, the second straight monthly increase.
- The increase in new loans comes as the PBOC reduced its key interest rates by 10 basis points at its June fixing. The PBOC decreased its one- and five-year loan prime rates (LPR) to 3.55% and 4.20%, respectively. The one-year LPR is a reference for corporate and household loans, while the five-year is a reference rate for mortgages.
- China’s central bank is hoping these rate reductions will help support the domestic economy. The rise in new loans will likely lead to higher spending by households and businesses, which could help drive growth. China’s economy grew by 4.5% year-over-year in the first quarter, below the government’s 2023 target of 5.0% growth.
- While China is looking to reduce rates amid relatively muted growth and ultra-low inflationary pressures, other central banks are going in the opposite direction. Recently, U.S. Federal Reserve Board officials have commented that rates need to go higher. Central bankers in Europe, the U.K. and Canada share that sentiment.
The PBOC’s recent rate reduction indicates a global economy filled with uncertainty and uneven growth. While some economies, such as Canada, have seen relatively strong growth, growth in the U.S., Europe and China has been somewhat sluggish. The Bank of Canada makes its interest-rate announcement today, with economists expecting another rate increase. Prepare your portfolio for an environment of higher interest rates for longer.
At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.
