China Lowers Key Interest Rates to Boost Economic Growth
In a bid to stimulate economic growth amid a prolonged real estate crisis and weak domestic demand, China has cut two critical lending rates as of Monday.
The one-year loan prime rate has been reduced by 25 basis points to 3.10%, while the five-year loan prime rate has similarly decreased to 3.6%.
The one-year rate influences the interest rates for both new and existing loans, and the five-year rate is commonly linked to mortgage interest rates. Notably, both rates were also decreased in July.
Last week, the People’s Bank of China, the nation’s central bank, announced plans to lower these loan prime rates.
This action forms part of Beijing’s strategy to bolster an economy that is grappling with high youth unemployment, alongside tepid domestic demand and the collapse of several major real estate developers.
Following the rate reductions, Chinese stock markets exhibited minimal reaction. The CSI 300 index saw a modest increase of 0.25%, reaching 3,935.20.
In contrast, Hong Kong’s Hang Seng index dropped by 1.57% to 20,478.46, while Japan’s Nikkei 225 index remained unchanged at 38,954.60.
Meanwhile, London’s FTSE 100 index, which often reflects trends in the Chinese economy, closed down 0.48% at 8,318.24.
Last month, China’s Shanghai Composite index experienced its fastest five-day surge since 1996, prompted by significant stimulus measures from Beijing, including the reduction of key interest rates and the establishment of a lending facility aimed at corporate buybacks, which typically boosts stock prices. Senior officials within the Chinese Communist Party have indicated plans to increase borrowing to fund investments, which would further enhance demand in the stock market.
Recent data shows that the Chinese economy grew by 4.6% year-on-year in the third quarter, marking the slowest growth rate in 18 months. The Communist Party is aiming for a full-year growth rate of 5%.
