Cuts to Benchmark Interest Rates Will Squeeze Banks' Profits, Analysts Say

(Beijing) – Recent cuts to benchmark interest rates will squeeze banks' profitability, analysts say, with one arguing that new borrowers may also suffer.

The central bank cut its benchmark lending interest rates by 40 basis points to 5.6 percent for one-year loans on November 22. The benchmark rate for one-year term deposits was reduced by 25 basis points to 2.75 percent. Banks were also allowed to raise their deposit interest rates to 20 percent above the benchmark, compared with the previous ceiling of 10 percent.