Beijing [China], June 11 : China's largest state-run banks have reduced interest rates on deposits this week to boost consumer spending. The rate cuts, the second such reductions since last year, showcase a growing concern that China's economy has not rebounded as strongly as expected after lifting its COVID-19 restrictions, The New York Times reported.
Six commercial banks have announced that they have reduced the rate for demand deposits from 0.25 per cent to 0.2 per cent. The banks have reduced the interest rates on deposits covering a fixed period of time, the report said.
The Industrial and Commercial Bank of China reduced the five-year deposit rate to 2.5 per cent from 2.65 per cent and reduced the three-year rate to 2.45 per cent from 2.6 per cent, The New York Times reported citing the bank's website.
A reduction in the deposit rates is one lever that policymakers can use to stimulate spending. The hope is that the lower rates will give consumers an incentive to spend or invest money instead of parking their savings in the bank, as per The New York Times reported.
The decision of banks indicates that consumer spending, a key driver of economic growth, remains sluggish. After China lifted its COVID restrictions last year and reopened the economy, there were expectations that pent-up demand will encourage people to begin spending freely. However, that has not taken place in various sectors of the economy.
Larry Hu, chief China economist at the finance firm Macquarie Group, said that the People's Bank of China might reduce the lending rate or take other steps to stimulate the economy in the coming months as per the news report.
China has predicted that its economy will recover from one of the slowest years of growth in decades last year and that gross domestic product will rise around 5 per cent in 2023. However, China's economic weakness persists.
China's economy witnessed a rise of 4.5 per cent in the first three months of the year. However, the outlook appears less promising. The second-quarter gross domestic product figures of Chin are expected to be announced next month.
As per the news report, the youth unemployment rate is at a record high. The real estate market continues to slump with little sign of recovery. Betty Rui Wang, the senior China economist at the Australian-based bank ANZ, said confidence in the economy was weak among Chinese households and private-sector businesses, as per the news report.
According to her, post-COVID-19 demand had helped to push the economy in the early part of the year. However, there were signs that indicate that May was a turning post. She further added that "it's losing momentum," The New York Times reported.
Many economists and analysts have been expecting measures to be announced after the meeting of the Politburo scheduled to be held next month. Politburo is the Chinese Communist Party's top decision-making body.
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