China’s central bank cuts key interest rates as economic recession deepens

The People’s Bank of China (PBOC) has surprised the market by cutting its key interest rate for the second time in 2022 as the Chinese economy struggles to grow.

The central bank cut the interest rate on the one-year Medium Term Facility (MLF) loan by 10 basis points from 2.85% to 2.75%. The move aims to keep liquidity in the banking system “reasonably sufficient”.

PBOC has provided MLF loans to some financial institutions, with current total loans of RMB 400 billion (approximately US$59 billion). The bank also cut its key interest rate, which provides short-term liquidity to banks, from 2.1% to 2%.

Recent Reuters A poll of market watchers had predicted that the PBOC would not change the MLF rate. It will be the first time since January 2022 that the PBOC will cut these rates. The central bank has previously shown reluctance to cut rates due to multiple economic problems, including inflation, rising debt and pressure on the yuan.

As such, the central bank’s decision was an unexpected one for many pundits. “The rate cut will surprise us … it should be a response to Friday’s weak credit data. . Reuters.=

The PBOC’s decision was made following a slew of dismal economic data. For example, retail sales in July only grew by 2.7% compared to a year ago. That’s down from his 3.1% in June. Industrial output he increased by 3.9% to 3.8%.

New credit increased at the slowest pace since 2017. China’s economic slowdown began in March after authorities imposed strict COVID-19 lockdowns in dozens of cities.

COVID-19 policy, real estate market woes

China’s growth in the second half of 2022 will be adversely affected by tougher COVID-19 policies, a possible slowdown in exports and a downward spiral in the property market, according to Nomura Holdings.

“Beijing’s policy support may be too little, too late and inefficient,” Nomura said. Said About the rate cut on the memo, according to Bloomberg. “We believe the market is overly optimistic about growth in the second half of the year and expect another cut in growth projections in the coming weeks.”

China’s real estate market has also been in trouble for some time. The sector accounts for about 30% of the Gross Domestic Product (GDP) and puts a lot of pressure on the economy. The real estate market crisis has been sparked by angry buyers threatening to stop paying mortgages on unfinished homes.

According to Goldman Sachs, the current situation has made people reluctant to invest in new homes. JP Morgan expects the Chinese developer’s first half revenue to fall 30% year-over-year.

In the first seven months of 2022, property investment by Chinese developers fell by 6.4%. July new home prices fell for the 11th straight month in 70 major cities.

Naveen Aslapury


Naveen Athrappully is a news reporter covering business and world events for The Epoch Times.