China lowers surprise interest rates
China's Economy Faces Growth Problems. A Consumption Slump in the Population and the Real Estate Crisis are the Triggers. Beijing is now counteracting. Experts were not expecting this.
In a surprising move, the People's Bank of China (PBOC) lowers benchmark interest rates. The PBOC reduced the one-year benchmark lending rate (LPR) from 3.45% to 3.35%, and the five-year benchmark lending rate (LPR) from 3.95% to 3.85%. According to Reuters polled economists, most did not anticipate that China would turn the interest rate screw. Most new and outstanding loans in China are based on the one-year LPR, while the five-year interest rate influences mortgage pricing.
Facing the real estate crisis and consumption slump in the People's Republic, lower credit costs could revive the economy. The second-largest economy in the world is struggling with economic growth after the pandemic and is seeking ways to revive economic dynamism.
Moreover, the top leadership is dealing with significant challenges in modernizing industry and promoting economic growth. "We need to overcome numerous difficulties and obstacles," said the deputy director for political research of the Central Committee of the Communist Party, Tang Fangyu, following the latest plenum led by President Xi Jinping. Modernization faces many complex conflicts and problems.
After the approximately five-yearly meeting of the CP leadership behind closed doors, government officials confirmed the government's goals. The main objectives are the modernization of industry, the stimulation of domestic demand, the promotion of the economy, and the containment of debt risks. Few details were provided on how to achieve these goals. For example, it remained unclear how domestic consumption would be increased while, at the same time, state aid would primarily flow into infrastructure projects and economic stimulus.
In response to the real estate crisis and consumption slump, China's central bank, the People's Bank of China, lowering interest rates might help Leitzinss, as lower credit costs could revive the economy. This move comes as China Evergrande, a significant entity in China's real estate sector, grapples with its own issues, contributing to broader concerns about the Chinese economy.
