The People’s Bank of China said on Wednesday it would cut its key interest rate further, a day after unveiling a series of new measures to jump-start the ailing economy.
The interest rate on one-year loans to financial institutions under its medium-term lending facility has been cut to 2.0 percent from 2.3 percent, the People’s Bank of China said in a statement on its website.
Interest rates were last cut in July.
China, the world’s second-largest economy, has yet to achieve its much-anticipated post-pandemic recovery, and Beijing has set a 5% growth target for 2024 that analysts say is too optimistic given the headwinds it faces.
People’s Bank of China Governor Pan Gongsheng said at a news conference in Beijing on Tuesday that the central bank would introduce a series of measures to boost growth, promising to “promote the expansion of consumption and investment.”
Those measures included reducing the amount of cash banks must hold as reserves and lowering interest rates on existing mortgages.
The government said the cut in the reserve requirement ratio, which determines the amount banks must hold as reserves, would inject about 1 trillion yuan ($141.7 billion) of long-term liquidity into financial markets.
Pan said the cut in mortgage rates would benefit 150 million people across China and “reduce average annual household interest payments by about 150 billion yuan.”
Pan said minimum down payments for first and second homes will be “harmonised”, with the minimum down payment for second homes being reduced from 25% to 15%.
The Chinese government also plans to create a “swap program” to allow companies to obtain liquidity from the central bank, which Pan said will “significantly enhance” companies’ ability to access funds to buy shares.
Hong Kong’s stock market surged more than 3% at the open on Wednesday, extending a gain of more than 4% the previous day.
But analysts warned that much bigger measures would be needed given the headwinds China faces, particularly in the real estate sector.
“China has implemented a series of monetary easing measures in recent years, but they have done little to stimulate the economy,” Shehzad Kazi of the China Beige Book told AFP. “Interest rate cuts alone are no longer enough to boost growth in China.”
“Beijing needs stronger household stimulus, but policymakers have once again let themselves down on that front,” he added.
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