China’s Central Bank Cuts Lending Rates to Boost Economy
In a bid to revive the economy, China’s central bank, the People’s Bank of China (PBOC), has cut benchmark lending rates as expected. The move is part of a broader stimulus package aimed at supporting the ailing property sector and boosting consumption.
A Much-Needed Boost
The one-year loan prime rate (LPR) was lowered by 25 basis points to 3.10%, while the five-year LPR was cut by the same margin to 3.6%. This marks the first time lending rates have been cut since July. The reduction in lending rates is expected to have a positive impact on the economy, as most new and outstanding loans in China are based on the one-year LPR.
A Series of Stimulus Measures
The PBOC has been aggressively implementing stimulus measures to support the economy. Last month, it cut the medium-term lending facility rate by 30 basis points and announced cuts to banks’ reserve requirement ratio by 50 basis points. The benchmark seven-day reverse repo rate was also reduced by 20 basis points. These measures have had a significant impact on the stock market, with the CSI300 Index breaking records for daily moves and rising over 14% overall.
A Mixed Bag of Results
While the stimulus measures have had a positive impact on the stock market, concerns remain about whether policy support will be enough to revive growth. Data released on Friday showed that China’s economic growth was slightly better than expected in the third quarter, but property investment fell more than 10% in the first nine months of the year. Retail sales and industrial production picked up in September, but officials acknowledge that more needs to be done to achieve the government’s full-year growth target of around 5%.
Further Easing on the Horizon
Officials have expressed confidence that the economy can achieve the government’s growth target and have flagged another cut to banks’ reserve ratio by the year-end. However, some analysts are skeptical about the effectiveness of further easing measures. “How influential further easing proves to be in China & Hong Kong equity and the CNH is up for debate, as market participants may be feeling a sense of policy easing fatigue,” said Chris Weston, head of research at Australian online broker Pepperstone.
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