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China cut its base lending rate for the first time in almost a year to help its struggling economy. The People’s Bank of China said that the one-year loan prime rate (LPR) would go down by 10 basis points to 3.55%. The five-year similar rate went down from 4.3% to 4.2%. Major banks set these rates, which affect how much companies and people have to pay to borrow money. This shows that the government is moving toward easing monetary policy because of worries about the country’s economy.
Even though COVID-19 restrictions were lifted six months ago, China’s economy is still not back to normal. Trade problems and a weak property market, which makes up more than a quarter of all business, have slowed growth. The People’s Bank of China (PBoC) cut the country’s medium-term loan facility last week, and the government announced more tax breaks for businesses. Most economists think that more steps to help the economy will be put in place in the coming months.
After the LPR news, China’s main stock market index, the CSI 300, stayed flat, while the Hang Seng China Enterprises index, which tracks mainland companies that are listed in Hong Kong, went down by 1.9%. Even though the five-year rate only went down by 10 basis points, property investors still lost money.
Experts say that for confidence to go up, the macroeconomic picture needs to be better and property prices need to go up. Since China reopened, economic data has been disappointing. This has led people to wonder how officials will respond, whether they will stay cautious or switch to more forceful measures to boost demand. Goldman Sachs recently changed its prediction for China’s full-year economic growth from 6% to 5.4%. They did this because there are still problems with growth and the government can only do so much.
According to a poll by Bank of America, consumer sentiment has gotten even worse, and fewer people plan to spend more in the next six months than in previous months. The number of people who thought home prices would go up in the next year also went down.
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