China PBoC cuts interest rates

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Sharecast News | 22 Jul, 2024

Rate-setters in China lowered their short-term policy rate for the first time since the summer of 2023.

On Monday morning, the People's Bank of China trimmed its seven-day reverse repurchase rate by 10 basis points to 1.70%.

The one and five-year Loan Prime Rates were also cut.

During the previous week, the Third Plenum of the country's Communist Party had voiced concern about the economy and committed to providing support.

Economists at Capital Economics were not impressed by the latest rate cuts, pointing out to clients that limited credit growth was the result of weak demand and not of restrictions on loan supply.

However, Julian Evans-Pritchard, Head of China Economics at Capital Economics, said: "While today's rate cuts offer some reassurance that policymakers are being responsive to the recent loss of economic momentum, the heavy lifting will need to come from fiscal, not monetary, policy.

"Fortunately, the signs on that front are encouraging too."

Economists at ING chipped in saying: "We believe the PBOC held back from monetary easing in the past few months in large part due to its priority to maintain currency stability amid a strong dollar trend.

"The recent dovish developments in the US and the slight softening of the dollar over the past month may have created a suitable window for the PBOC to cut rates."

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