Beijing (AFP) – China’s central bank on Wednesday said it would slash another key interest rate, a day after it unveiled a raft of new measures aimed at boosting its ailing economy. The medium-term lending facility — the interest for one-year loans to financial institutions — was cut from 2.3 percent to 2.0 percent, the People’s Bank of China said in a statement on its website. The rate was last lowered in July.
The world’s second-largest economy has yet to achieve a highly anticipated post-pandemic recovery and Beijing has set a goal of five percent growth in 2024 — an objective analysts say is optimistic given the headwinds it is facing. On Tuesday, central bank chief Pan Gongsheng told a news conference in Beijing that the bank would introduce a series of measures to boost growth and pledged to “promote the expansion of consumption and investment”.
Among those measures were a reduction in the amount of cash banks must hold in reserve and the lowering of interest rates for existing mortgages. Beijing said the cut to the reserve requirement ratio, which dictates how much lenders must hold in reserve, would inject around a trillion yuan ($141.7 billion) in long-term liquidity into the financial market. And the mortgage rate cut would benefit 150 million people across China, Pan said, as well as lower “the average annual household interest bill by about 150 billion yuan”. Minimum down payments for first and second homes would be “unified”, with the latter reduced from 25 to 15 percent, Pan said.
Beijing would also create a “swap programme” allowing firms to acquire liquidity from the central bank, which Pan said would “significantly enhance” their ability to access funds to buy stocks. Shares in Hong Kong soared more than three percent at Wednesday’s open, extending the previous day’s more than four percent rally.
But analysts warned that much greater action would be needed given the headwinds China is facing — particularly in the property sector. “China’s slew of monetary easing measures have done little to stimulate the economy in recent years,” China Beige Book’s Shehzad Qazi told AFP. “Rate cuts are no longer enough to boost growth in China,” he said. “Beijing needs a more powerful household stimulus plan, and policymakers again disappointed on that front,” he added.
© 2024 AFP
