BEIJING (dpa-AFX) – The Chinese central bank is fighting the economic consequences of the corona lockdowns and the country’s real estate crisis with interest rate cuts. The People’s Bank of China cut its key interest rate (loan prime rate) on one-year loans by 0.05 percentage points to 3.65 percent, according to a statement Monday. The five-year rate, which is important for real estate loans, fell by 0.15 points to 4.3 percent and thus more significantly than economists had expected on average, while the one-year rate was not reduced quite as significantly as expected.
In order to support the economy, China’s central bank surprisingly lowered the interest rate for one-year refinancing transactions with banks a week ago for the first time since January. Inflation in China is comparatively low, but the country is struggling with a surprisingly weak economy as a result of the country’s strict corona policy.
Other countries, on the other hand, suffer from very high inflation. The central banks there are taking action against the high inflation by raising interest rates. The US Federal Reserve, in particular, has recently raised key interest rates sharply.
In view of the opposite development, the scope for the Chinese monetary policy According to experts, be limited. The interest rate hikes in the USA raised concerns that capital could flow out of China and thus weaken the Chinese currency, the yuan. The possibilities of the Chinese central bank are also limited by the considerable debt of many public companies and the provincial governments.
The country’s economy is suffering from Beijing’s tough “zero corona policy”. The aim of this is to nip any outbreak in the bud. Numerous megacities had imposed strict measures, especially in spring, to prevent the spread of the highly contagious omicron variant.
At the same time, China’s industry is feeling the effects of a drought in Sichuan province, which is driving up electricity consumption for things like air conditioning, while electricity production from hydropower – the province’s most important energy source – has plummeted. The consequences are electricity rationing for parts of the economy. However, the situation is not yet as bad as in 2021, an expert recently explained.
In addition, there are huge problems on the real estate market with many ailing companies and halted construction projects. According to Jefferies analyst Sean Darby, there are still no signs that these problems will spread to other sectors of the economy.
All of this affects economic growth. The Chinese government had originally set a growth target of 5.5 percent for this year, which now seems unrealistic. At a Politburo meeting a few weeks ago, there was only talk of striving for the “best possible result” for growth. The International Monetary Fund (IMF) recently predicted only 3.3 percent growth for China./mis/stk/jha/