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China slashes interest rates in a surprise move to boost its slumping economy

Jul 22, 2024, 23:17 IST
Business Insider
People's Bank of China in Beijing, China.AP Images
  • China cut key interest rates after its leaders met at a Communist Party plenum last week.
  • China's second-quarter economic data missed government targets and analyst expectations.
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The world's second-largest economy cut several short- and long-term interest rates on Monday to prop up its sluggish, debt-burdened economy.

The People's Bank of China cut its seven-day reverse repo rate by 10 basis points, from 1.8% to 1.7%, and its standing lending facility — given to commercial banks to supply temporary cash — by the same margin.

China also cut its benchmark bank lending rates by 10 basis points, including its one-year loan prime rate and five-year LPR, which went from 3.45% to 3.35% and 3.95% to 3.85%, respectively.

The surprise cuts come after the country reported its second-quarter economic data last week, showing economic growth up 4.7% from a year ago, missing this year's goal of 5.0%. The numbers also fell below analysts' expectations.

China's strong exports continue to drive its economic growth as consumer sentiment lags, even as household deposits hit record numbers last month. Retail sales expanded just 2% year-over-year in June.

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The rate cuts follow a meeting of the country's leaders last week at the Communist Party's Central Committee, a plenum that occurs every five years.

"China's Third Plenum put 'high-quality development' as the top priority. Policy makers vowed to achieve 2024 growth target and manage risks of property, local govt debts, and smaller banks," Bank of America analysts wrote on Monday.

Other commentators noted that the reforms promised at the plenum and the rate cuts are positive developments, but not enough to convince skittish investors that China's problems are behind it.

"[T]here still appears to be a tension between policies aimed at boosting economic security and expanding the supply-side of the economy, and those aimed at giving market forces a greater role and rebalancing growth toward consumption," Capital Economics wrote following the plenum last week.

China released a policy document following the meeting that outlines goals to improve business sentiment as the country's economy faces deflation, debt, a real estate crisis, and tense international trade relations with other large economies.

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