Chinese economy: LPR reduced for the first time in 20 months
“The cut reinforces our view that authorities are increasingly open to cutting interest rates amid looming economic headwinds,” Zhaopeng Xing, senior China strategist at ANZ, said Monday. in a research note.
A lower lending rate can help reduce borrowing costs for households and businesses and thereby encourage consumers to expenses and investments.
Unlike the West, Beijing has refrained from flooding the economy with stimulus packages during the pandemic, instead focusing on offering targeted support to small businesses.
China was the only major economy to register growth in 2020, but this year the country’s expansion has been hit by several factors, forcing it to consider ways to provide support even as other major banks central governments are withdrawing stimulus and raising interest rates to fight inflation.
To counter rising economic risks, policymakers pledged at this year’s meeting to implement “front load” policies, including keeping monetary policy “flexible”.
Last week, the central bank lowered the reserve requirement ratio for most banks by half a percentage point. The move, which reduces the amount of money banks must keep in reserve, is expected to free up some 1.2 trillion yuan ($188 billion) for lending to businesses and households, according to the PBOC.
Monday’s LPR cut is expected to reduce “interest burden” by about 80 billion yuan ($12.6 billion) a year, starting next year, for businesses and households, it said. Xing from ANZ.
“The PBOC wants to provide more easing because it is more concerned with economic dynamics,” Societe Generale analysts said in a research note on Monday.
“There should be no doubt now that a serious (although still limited) easing cycle is unfolding.”
Economists say the world’s second-largest economy could grow next year at its slowest pace since 1990.