China’s central bank cut key interest rates in a surprise move on Monday, aimed at injecting new life into its ailing property sector, while the ruling Chinese Communist Party released details of a top-level meeting focused on strategies for revving up the slowing economy.
The People’s Bank of China (PBOC) cut the five-year loan prime rate (LPR), which is a benchmark for mortgages, by 10 basis points from 3.95 percent to 3.85 percent, while the one-year LPR was reduced from 3.45 percent to 3.35 percent.
The central bank also lowered collateral requirements for its medium-term lending facility for banks, saying it was intended to ease pressure on the bond market.
Photo: Andy Wong, AP
The PBOC also cut the interest rate on its purchases of securities from commercial banks through bidding, with a promise to sell them back in the future. The rate on seven-day “reverse repos” was decreased from 1.8 percent to 1.7 percent to help put more cash into the banking system.
The world’s second-largest economy has struggled to regain momentum since the COVID-19 pandemic, and a slump in the property market has been a major hindrance. Economic growth fell to 4.7 percent in the last quarter, but remained at the government’s target rate of about 5 percent for the first half of the year.
The expanded summary of the party’s plenum last week included ambitious targets for accomplishing Chinese President Xi Jinping’s (習近平) goal of making China a “high-standard socialist market economy in all respects” by 2035.
The document promises to increase social welfare such as pensions, improve the tax system and protect private property rights. Rural migrants should have the same access to public services as long-term city dwellers, it says.
It also pledges equal market access and support for private enterprises and state-owned companies, and establishes better “international coordination” of economic policies.
The actual reforms and laws outlined in what amounts to a policy roadmap would come much later.
“We think these measures, if implemented well promptly, should help improve resource allocation, contain financial risks, unleash some growth potential and underpin investors’ confidence, while the actual implementation, and policy clarity and sustainability would be the key,” UBS economists Nina Zhang and Tao Wang said in a report.
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