China Cuts Key Lending Rates for First Time in Seven Months

China has lowered its benchmark lending rates for the first time since October, signaling a renewed push to support economic growth as inflation pressures ease and trade tensions temporarily cool.

The People’s Bank of China on Tuesday reduced the one-year loan prime rate (LPR) from 3.1% to 3.0%, and the five-year LPR from 3.6% to 3.5%. The LPR is the rate commercial banks charge their best clients and serves as a key reference for household and business loans across the country.

The rate cut came after several major state-owned banks lowered their deposit rates by up to 25 basis points earlier in the day. These moves are intended to preserve profit margins while allowing room for broader monetary easing.

This latest cut is part of a series of stimulus measures rolled out by Beijing this month, including reductions in lending rates and reserve requirements for banks. Mortgage rates under the national housing provident fund were also cut by 25 basis points.

The yuan has shown signs of recovery following recent weakness. The offshore Chinese currency has gained over 2.8% against the U.S. dollar since last month, aided by a softer dollar and easing trade tensions. Economists say currency stability gives China more space for policy adjustments without triggering capital flight.

The rate cuts come amid ongoing economic challenges. Consumer prices have declined for three straight months, and wholesale prices dropped sharply in April. Despite modest improvements in some areas, deflation remains a concern.

Zichun Huang, chief economist at Capital Economics, said the central bank may reduce lending rates further by up to 40 basis points before year-end. However, he noted that rate cuts alone may not be enough to significantly boost loan demand, and that more fiscal support will be needed to sustain recovery.

Earlier this month, U.S. and Chinese officials agreed to suspend most trade tariffs for 90 days, reducing immediate pressure on exporters. The move has improved short-term economic sentiment, prompting some banks to raise growth forecasts.

Nomura revised its second-quarter GDP growth forecast for China to 4.8%, up from 3.7%, and lifted its full-year estimate to 3.7%. But analysts warned that risks remain from a weak property sector and the possibility of renewed trade frictions with the U.S.

Despite recent policy moves, China’s official growth target of around 5% may still be difficult to reach without broader stimulus. Economists expect future measures to be gradual and targeted, especially given fiscal constraints and global uncertainty.