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China PBOC Implements Second Rate Cut

The People's Bank of China (PBOC)

BNR – China’s bank, the People’s Bank of China (PBOC), has made its second interest rate cut in three months. This occurs as the country’s second-largest economy grapples with challenges in recovering from the pandemic’s impact.

Efforts to Support Post-Pandemic Recovery

The PBOC has decreased the one-year loan prime rate from 3.55% to 3.45%. It marked a continuation of efforts to support the nation’s post-pandemic revival.

This move comes as China’s recovery faces hurdles including a property market crisis, diminished export activity, and subdued consumer spending.

While other major economies have been raising rates to combat rising inflation, China’s economic landscape has prompted a contrary response. This recent cut follows a similar reduction in June, underlining the central bank’s commitment to revitalising economic momentum.

Analysts Speculate on Economic Rejuvenation in China

Jun Bei Liu, representing Tribeca Investment Partners, noted that this action may not have an immediate substantial impact. However, it signals the Chinese government’s dedication to fostering economic rejuvenation.

She emphasised the potential requirement for a more substantial stimulus package to bolster confidence, invigorate consumption, and invigorate growth. The absence of such measures could result in deflation risks that might be challenging to reverse, she added.

Analysts had also anticipated a reduction in the five-year loan prime rate, which affects the country’s mortgages. However, this rate remained unchanged at 4.2%. In a surprising move last week, the PBOC also lowered short and medium-term rates.

Catherine Yeung, Investment Director at Fidelity International, speculated that further rate cuts might support the property market. While China aims to rebuild economic certainty, policymakers are also vigilant about the long-term implications of their actions, she noted.

China’s economy has faced many hurdles in the aftermath of the pandemic, during which much of the world experienced shutdowns. The latest setbacks in its real estate market reached its peak when Evergrande filed for bankruptcy protection in the US.

Furthermore, China went through deflation for the first time in over two years. Concerns also arose as July’s data indicated a significant drop in imports and exports, signalling risks to the nation’s recovery.


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