With the easing of monetary policy, the Chinese central bank stands out internationally.
(Photo: Reuters)
Beijing The Chinese central bank is trying to counteract the economic consequences of the corona lockdowns and the country’s real estate crisis by cutting interest rates. 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 percentage 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 reduced the interest rate for one-year refinancing transactions with banks a week ago for the first time since January. With the easing of monetary policy, the Chinese central bank stands out internationally. The central banks of many other countries are trying to get their high inflation under control by raising interest rates. In China, however, inflation is quite low.
In view of the contrasting development, the scope for Chinese monetary policy is likely to be somewhat limited, according to experts. The interest rate hikes, particularly in the USA and the euro zone, 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.
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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. In addition, there are huge problems on the real estate market with many ailing companies and halted construction projects.
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