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China slashes interest rates and mulls big stimulus package in bid to revive slowing economy

Jun 13, 2023, 21:19 IST
Business Insider
A man sits in front of an electronic board displaying stock prices at a brokerage house in Beijing, Monday, June 25, 2018. Asian stock markets fell Monday and oil prices gave up some of their gains after Chinese regulators freed up extra money for bank lending amid a trade dispute with Washington.Andy Wong/AP Photo
  • China just slashed short-term interest rates in its economy to 1.9%.
  • Meanwhile, the government is mulling a big stimulus package to prop up key sectors.
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China's central bank slashed short-term interest rates and is mulling a bigger monetary stimulus package — signs that the nation is trying to revive economic activity amid a slowdown that bucked forecasts of a red-hot recovery after pandemic lockdowns.

Short-term interest rates in China were cut to 1.9% from 2% on Tuesday, according to an announcement from the People's Bank of China, marking the first rate cut from China's central bank since August of last year.

The PBOC also injected 2 billion yuan, or $280 million into the country's banking system – another form of monetary easing aimed at increasing liquidity in the economy.

China's government, meanwhile, is mulling a hefty economic stimulus package, Bloomberg reported, citing people familiar with the matter. The package includes more than a dozen proposals, which involve using stimulus money to prop up demand and China's real estate market – two areas that have particularly struggled in the wake of the nation's economic reopening.

That comes as China closes the book on uts zero-COVID lockdown policies, a move that was supposed to spark a rebound in its economy. But economic activity has largely floundered in 2023, with key sectors struggling as consumer demand picks up less than anticipated. Chinese manufacturing activity continued to contract in May, while home sales plunged 14.3%, according to the latest statistics.

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In April, PBOC governor Yi Gang said he still believed China could reach its goal of 5% GDP growth this year, but some experts are skeptical on that future, particularly as the nation is saddled with high levels of debt and faces the risk of deflation in its economy.

That makes the narrative that China will undergo a huge economic rebound is merely a "charade," according to Rockefeller International chair Ruchir Sharma. Meanwhile, former International Monetary Fund official Desmond Lachman said China could be headed for a lost decade, as its economy is unlikely to recover from its COVID-era restrictions anytime soon.

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