China has recently escalated its economic support by implementing surprising interest rate cuts. This move aims to bolster growth after a critical meeting of the Communist Party left investors disappointed due to a lack of short-term stimulus measures.
On Monday, the People’s Bank of China reduced the seven-day reverse repo rate, marking the first decrease in nearly a year. Soon after, Chinese banks lowered their benchmark interest rates, resulting in cheaper mortgages and other types of loans.
These economic adjustments highlight the authorities’ urgent need to strengthen an economy that is growing at its slowest pace in over a year. This follows the release of a comprehensive document from the party supporting President Xi Jinping’s plan to prioritize technology in China’s future economic landscape, while also accepting slower short-term growth.
The CSI 300 index of Chinese stocks fell by 1.1%. The yuan weakened by 0.1% against the dollar in offshore trading, although the Hang Seng China Enterprises Index in Hong Kong rebounded by 0.8% after an earlier decline of 0.6%.
Last week’s Third Plenary Session confirmed Beijing’s intention to avoid massive stimulus measures while working to redesign growth engines away from debt-driven sectors, such as real estate. While Xi mentioned plans to assist local governments burdened by debt, there was little urgency from the authorities to stimulate demand or address the ongoing downturn in the real estate sector, which is affecting the world’s second-largest economy.
The recent cut in rates was modest. The People’s Bank of China had previously lowered the seven-day interest rate by 10 basis points in August, alongside a cut in the one-year reference rate. However, ongoing pressure from currency depreciation has constrained the central bank’s ability to further reduce rates.
The minimal decrease from 1.8% to 1.7% is expected to have limited impact on loan demand. Economists at Morgan Stanley, including Robin Xing, remarked that this reflects the “reactive nature of the easing” and poses risks to their annual growth forecast of 4.8%.
Despite reiterating its commitment to achieving a growth target of around 5% for 2024, the lack of stimulus signals disappointed stock buyers when the markets opened the following day. A more detailed document released on Sunday outlined the party’s plans to strengthen local government finances by transferring more revenue from central to local authorities. This could encourage officials to increase consumer spending, although any noticeable effect on consumption is likely to take time.
Source: https://www.perfil.com/noticias/bloomberg/bc-china-sorprende-con-recorte-de-tasas-tras-decepcion-por-tercer-pleno.phtml
