PBOC: Lower Deposit Rates Can Create Room for Loan Rate Cuts

The PBOC's explicit link between deposit-rate declines and lending-rate room is a signal about how it intends to manage bank profitability while easing credit conditions — a constraint that has limited how far loan rates can fall without eroding spreads. The reference to the euro area and Japan frames the endgame: policy rates near zero, deposit rates at the floor, and lending rates compressed. For banks and anyone tracking Chinese credit conditions, the open question is whether deposit repricing proceeds fast enough to keep net interest margins from squeezing further as lending rates move lower.