China’s PBOC cuts interest rates as lockdowns and housing crisis slow economy
The People’s Bank of China cut the main rate at which it provides short-term liquidity to banks from 2.1% to 2%. The central bank also cut the rate on its one-year lending facility from 2.85% to 2.75% to “maintain reasonable and sufficient liquidity in the banking system”, it said in a statement. .
It was the first time since January that these rates had been lowered.
“The PBOC appears to have decided it now has a more pressing problem: the latest data shows lackluster economic momentum in July and slowing credit growth, which has been less susceptible to policy easing than in previous downturns. economics,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a research note on Monday.
Economic data released Monday for July was much worse than expected.
Retail sales rose 2.7% in July from a year ago, slowing from June’s 3.1% growth, the National Bureau of Statistics reported. This number largely missed the 5% rise predicted by economists in a Reuters poll. Industrial production rose 3.8% in July from a year earlier, down from 3.9% growth in June. It also missed the market’s expectation of a 4.6% rise.
Moreover, the real estate crisis intensified further. Property investment by developers contracted 6.4% in the first seven months of this year, accelerating from the 5.4% decline in the first half, according to SNB data. Meanwhile, new home prices in 70 major cities fell for an 11th consecutive month in July.
“Data from July suggests the post-lockdown recovery has run out of steam as the one-off stimulus from reopening faded and mortgage boycotts sparked further deterioration in the real estate sector,” Evans-Pritchard said of Capital Economics.
Angry homebuyers across the country have threatened to stop paying their mortgages on unfinished homes, shaking markets and prompting developers and authorities to take action to defuse the crisis.
The housing market was already suffering from a prolonged decline in prices and a liquidity crisis that engulfed some of the country’s biggest developers.
Evans-Pritchard said it was unclear whether Monday’s rate cuts would be enough to reignite the rebound in credit growth.
“The current weakness in loan demand is partly structural, reflecting a loss of confidence in the housing market and uncertainty caused by recurring disruptions to China’s zero Covid strategy,” he said.
“These are brakes that cannot easily be solved by monetary policy,” he added.
Fu Linghui, spokesperson for the BES, also voiced concern on Monday over extreme heat and rainfall which is hitting food production and causing inflation in the country.
“Affected by the continuous high temperature in many places, the price of fresh vegetables rose 12.9% year-on-year, which was significantly higher than the same period in previous years,” Fu said said at a Monday press conference in Beijing.
He pointed out that the extreme heat has caused droughts in some agricultural areas in the south. In the north, rains and floods have also led to poor harvests.
“August and September are the key periods for the formation of autumn cereal production. [We must] pay particular attention to the impact of natural disasters, insects and diseases on our country’s food production,” he added.