China’s biggest state-owned banks cut interest rates on deposits this week to boost consumer spending.
The rate cut is the second such rate cut since last year. The interest rate cut is a clear indication that China’s economy has not recovered as strongly as expected after the lifting of restrictions imposed to control the spread of the coronavirus, the New York Times reported.
Six commercial banks have announced that they have reduced the rate of demand deposits from 0.25 percent to 0.2 percent. The report also states that banks have reduced interest rates for deposits covering a fixed period.
The Industrial and Commercial Bank of China cut the five-year deposit rate from 2.65 percent to 2.5 percent and the three-year rate from 2.6 percent to 2.45 percent, the New York Times reported citing the bank’s website.
Lowering deposit rates is one lever policymakers can use to stimulate spending. As the New York Times reports, lower prices are expected to give consumers an incentive to spend or invest their savings instead of keeping them in the bank.
The banks’ decision shows that consumer spending, a key driver of economic growth, remains sluggish. After China lifted its anti-coronavirus restrictions and reopened the economy last year, there were hopes that increased demand would encourage people to start spending freely, but that has not happened in various sectors of the economy.
