The People’s Bank of China cut key interest rates in an attempt to counter the post-coronavirus slowdown in the world’s second-largest economy, but left another one unchanged. The move has confused economists.
Recently, labor market uncertainty and a slowdown in the global economy have dampened activity, dampening demand for Chinese products.
Financial problems in the real estate sector have also hit growth, with several large developers on the brink of bankruptcy and struggling to complete projects.
The People’s Bank of China announced today that it will cut the one-year loan prime rate (LPR), a benchmark for corporate lending, from 3.55% to 3.45%.
But the 5-year LPR, which is used to price mortgages, was expected to drop by 15 basis points following a similar cut in the key central bank policy lending rate last week. However, it remained unchanged at 4.2%.
Goldman Sachs economist Maggie Wei said the LPR cut was “disappointing”, adding that it “doesn’t help build confidence” as Chinese officials pursue economic recovery.
“The decision to keep the five-year period unchanged is puzzling,” said Zhang Ziwei, chief economist at Pinpoint Asset Management.
“It’s not clear how to interpret this decision and last week’s cuts.”
Chinese stocks plunged to a nearly nine-month low as investors were disappointed by the softer-than-expected measures to boost confidence.
Raymond Yong, chief economist for Greater China at Australia New Zealand Banking Group, said: “The LPR’s alarming retention over five years contradicts the overall policy tone of the property bailout.
“This pending LPR policy message will disrupt markets and weaken its impact on sentiment.”
“Overall, the PBOC’s approach to monetary policy is limited in the current environment, or at least not sufficient on its own,” said Julian Evans-Pritchard, head of China economics at Capital Economics. That’s what it means,” he said. It is at the bottom of growth. “
“However, the disappointing results from the MLF cut to the LPR reinforce our view that the PBOC is unlikely to accept the significant reduction needed to restore credit demand,” he added. Ta.