"We believe the cut in banks' deposit rates sends a strong signal that the PBOC is paving the way for a cut in benchmark lending rates to guide down LPR," Nomura's chief China Economist Ting Lu and a team said in a report.
The medium-lending facility interest rate is due out June 15, while the loan prime rate is scheduled for release on June 20. The more important issue is to bring unemployment rate down. Households with stronger confidence in their jobs would spend more."This new round of deposit rate cuts, as well as rapidly worsening exports, broadening property distress, ongoing disinflation, and a likely Fed pause, raise our conviction of this call on rate cuts," the analysts said, noting they have been calling for a 10-basis-point cut to the MLF and LPR interest rates since mid-May.
The PBOC has not changed the two rates for nine months. The MLF's one-year interest rate was 2.75% in May, while the one-year LPR was 3.65% and the five-year LPR was 4.3%.to curb inflation.Lower interest rates give businesses more incentive to borrow. Cutting deposit rates makes it more expensive for people to keep their money in the bank, and theoretically gives them more incentive to spend.
In the first quarter, 58% of household depositors said they would prefer to save rather than spend or invest, according to a PBOC survey. That was the lowest level in a year.
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