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China lowers rates because of lockdowns as the real estate crisis faces the heavy loss

China lowers rates because of lockdowns as the real estate crisis faces the heavy loss

China lowers rates because of lockdowns as the real estate crisis faces the heavy loss

China

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  • The primary rate at which the People’s Bank of China provides banks with short-term liquidity was lowered from 2.1% to 2%.
  • Meanwhile, the yuan declined in value relative to the US dollar.
  • The National Bureau of Statistics stated that retail sales increased 2.7% from a year earlier in July, slowing from June’s 3.1% gain.
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As fresh statistics revealed the economy slowed down last month as a result of renewed Covid lockdowns and a worsening real estate market, China’s central bank lowered interest rates on Monday.

The primary rate at which the People’s Bank of China provides banks with short-term liquidity was lowered from 2.1% to 2%. In order to “keep reasonable and sufficient liquidity in the banking system,” the central bank also reduced the rate on its one-year loan facility from 2.85% to 2.75%, according to a statement

This was the first decrease in such rates since January.

Investors were surprised by the action. Despite the economy faltering in the April–June quarter, the central bank has previously been hesitant to decrease rates further due to worries about the risk of growing debt, consumer inflation, and pressure on the yuan.

Julian Evans-Pritchard, the senior China economist at Capital Economics, stated in a research note on Monday that the PBOC “seems to have decided it now has a more pressing problem: the latest data show lackluster economic momentum in July and a slowdown in credit growth, which has been less responsive to policy easing than during previous economic downturns.”

On the same day, economists from ING stated in a note that the market had interpreted China’s rate reduction as “bearish.” Monday saw a decline in Chinese stock markets, with the Shanghai Composite (SHCOMP) and Hong Kong’s Hang Seng Index (HSI) both declining by 0.7% and 0.7%, respectively. Meanwhile, the yuan declined in value relative to the US dollar.

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The economic statistics for July released on Monday were far worse than anticipated.

The National Bureau of Statistics stated that retail sales increased 2.7% from a year earlier in July, slowing from June’s 3.1% gain. That figure significantly fell short of the 5% increase predicted by economists in a survey. In contrast to June’s 3.9% growth, industrial production increased by 3.8% in July. It also fell short of the market’s forecast of a 4.6% increase.

Additionally, the real estate downturn has grown worse. According to data from the NBS, developer property investment fell by 6.4% in the first seven months of this year, picking up speed from the first-half loss of 5.4%. New home prices fell for the eleventh consecutive month in July across 70 major cities.

According to Evans-Pritchard from Capital Economics, “the July figures show that the post-lockdown rebound lost pace as the one-time lift from reopening dried out and mortgage boycotts sparked a further downturn in the property sector.”

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