China cuts interest on loans again to support the economy

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China cuts interest on loans again to support the economy
China cuts interest on loans again to support the economy

On Monday, the Chinese central bank reduced a reference interest rate for the second time in the past week. This move aims to boost economic activity and support the slowing growth of China, which is the world’s second-largest economy.

The benchmark interest rate for one-year loans, which serves as a reference for bank loans to both companies and families, has been lowered from 3.55 percent to 3.45 percent.

In June, the central bank reduced the interest rate.

However, the Central Bank chose not to make any changes to the interest rate for mortgage loans, leaving it at 4.2 percent.

The historical levels of these two market reference ratios are currently at their lowest. 

The markets had been anticipating this decision, which is aimed at encouraging commercial banks to provide more loans at better interest rates. This will help support economic activity in light of the current economic slowdown.

Amidst the rising interest rates of global economic powers to control inflation, the Central Bank has also taken action.

According to official media reports on Sunday, a decision was made during a meeting on Friday between the Central Bank and financial regulators. The decision was to provide more support to the economy and reduce hidden risks, although the specific nature of these risks was not mentioned.

China had experienced a post-Covid recovery towards the end of 2022 after the lifting of health restrictions. However, growth has started to slow down recently, and the real estate sector is facing a severe crisis.

The real estate development company called “Country Garden” was thought to be financially stable for a significant amount of time. However, they are now facing massive debts that have caused concerns about potential payment defaults. If they do default, it could negatively impact China’s financial system. This comes just two years after their competitor, Evergrande, also failed to pay their debts.

The Chinese central bank took steps to boost the economy by reducing the interest rate on medium-term loans provided to financial institutions on Tuesday.

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