China’s central bank lowered a key interest rate on Monday in an effort to combat the second-largest economy in the world’s post-Covid growth slowdown.
Recently, uncertainty in the labor market and the slowdown of the global economy have weighed on activity, which has weakened demand for Chinese goods.
A significant barrier to expansion in the real estate industry is the financial difficulties that have left a number of top developers near bankruptcy and unable to finish their projects.
The prime rate for one-year loans, which is used as a benchmark for business lending, was lowered by the People’s Bank of China on Monday from 3.55% to 3.45%.
But the mortgage pricing tool, the five-year LPR, remained stuck at 4.2%.
The markets closely monitor these two rates, which were previously lowered in June and are currently at all-time lows.
The goal of the ruling is to incentivize commercial banks to extend credit at more favorable terms and in greater quantities.
The goals of Monday’s actions, which go against global interest rate increases as other major countries attempt to control inflation, are to subtly boost economic activity as GDP slows.With the removal of health limitations by the end of 2022, the eagerly anticipated post-Covid rebound has stalled in recent months.
Household debt levels dropped last month to their lowest point since 2009, which is another indication that the economy is stalling.
Last Tuesday, the central bank lowered the interest rate on its medium-term lending facility to financial institutions in an effort to boost the economy.
Financial authorities also concurred on Friday over the necessity of “financial support” while steering clear of “risks and hidden dangers,” according to official media.Bloomberg polled analysts, and they predicted that the LPR will be slashed further after the Friday meeting.
Maggie Wei, an economist at Goldman Sachs, called the LPR cut “disappointing” and added that it “would not help with building confidence” as Chinese authorities pursued an economic recovery in a note sent out after the announcement on Monday.
The move did not seem to excite traders, as Shanghai’s stocks fell 0.6% and Hong Kong’s stocks fell 1.4%.
The move by the central bank coincides with concerns of an impending bankruptcy that might have catastrophic effects on the domestic financial system due to a crisis at the property behemoth Country Garden, which was previously thought to be financially stable but is now extremely indebted.
The financial difficulties of Country Garden are intensifying barely two years after a major rival, Evergrande, which is beset by massive debt, went through a crisis.
Apart from the difficulties associated with real estate, reduced consumption due to job market uncertainty and a slowdown in the global economy also hinders growth.
The demand for Chinese goods is being affected, which is causing thousands of firms to operate more slowly.