China’s PBOC cuts interest rates as lockdown and property crisis slow economy

The People’s Bank of China cut the key interest rate that provides short-term liquidity to banks from 2.1% to 2%. In a statement, the central bank said it had cut the interest rate on the one-year loan facility from 2.85% to 2.75% in order to “maintain reasonable and sufficient liquidity in the banking system.”

It’s the first rate cut since January.

The move surprised investors. The central bank has previously been reluctant to cut rates further, given concerns over rising debt, consumer inflation and the risk of pressure on the yuan, despite the economic slowdown in April-June. rice field.

“The PBOC appears to have decided it now has a more pressing problem,” Julian Evans said. , making it less responsive to policy easing than it was during previous recessions.” Pritchard, senior China economist at Capital Economics, said in a research note on Monday:

Markets view China’s rate cut as “bearish,” ING economists wrote in a note dated the same day.China’s stock market fell on Monday, Hong Kong’s Hang Seng Index (HSI) 0.7% down, Shanghai general (SHCOMP) somewhat low.On the other hand, depreciation of the yuan against the US dollar.

Economic data for July released on Monday were far below expectations.

The National Census Bureau reported that retail sales rose 2.7% year-on-year in July, slowing from 3.1% growth in June.the number is wide It missed the 5% increase predicted by economists in a Reuters poll. Industrial production in July rose 3.8% year-on-year, down from his 3.9% growth in June. It also missed market expectations of a 4.6% gain.

In addition, the slump in real estate It’s getting even more intense. NBS data show that property investment by the developer fell 6.4% in the first seven months of the year, accelerating from a 5.4% decline in the first half. Meanwhile, new home prices in 70 major cities fell in July for the 11th straight month.

“July data suggests the post-lockdown recovery has lost momentum,” said Evans-Pritchard of Capital Economics.

Aerial view of an empty street as Sanya imposes city-wide static controls to curb the new COVID-19 outbreak in Sanya, Hainan province, China, 12 August 2022.
Beijing’s uncompromising stance to eradicate the virus led to a months-long lockdown in dozens of cities across the country earlier this year, including Shanghai, the country’s financial and transportation hub. Businesses have stopped, factories have closed, millions of people have been confined to their homes, and economic activity has been severely disrupted.
Authorities began reopening the economy in early June, lifting restrictions in some major cities. Manufacturing and service sectors were showing signs of improvement following the move.
However, multiple cities quickly reimposed Covid restrictions in late June as authorities struggled to contain the spread of the BA.5 variant of the coronavirus. According to Nomura’s latest survey, 41 cities had implemented lockdown measures by July 18, up from 31 the previous week.
Trouble in the real estate sector, which accounts for 30% of China’s GDP, is putting huge pressure on the economy.

Angry homebuyers across the country are threatening to stop making mortgage payments on unfinished homes, shaking markets and prompting developers and authorities to take action to defuse the crisis.

China rushes to ease alarm over mortgage boycotts and bank runs

The real estate market is already suffering from prolonged price declines and a liquidity crisis, engulfing some of the country’s largest developers.

goldman sachs (GS) The mortgage boycott is likely to make people even more hesitant to buy new homes, further declining sales, he said Monday.

Evans-Pritchard said it was unclear whether Monday’s rate cut would be enough to revive credit growth.

“The current weakness in loan demand is partly structural, reflecting a loss of confidence in the housing market and uncertainty from repeated disruptions from China’s zero Covid strategy.

“These are problems that monetary policy cannot solve easily,” he added.

China issues highest heat alert for nearly 70 cities in second heat wave this month

NBS spokesperson Fu Linghui also expressed concern on Monday that extreme heat and rainfall are hurting food production and causing inflation in the country.

A heat wave has swept across China since June, with temperatures exceeding 40 degrees Celsius in dozens of cities and affecting more than 900 million people. Meanwhile, severe storms have also caused severe flooding and landslides in some states.

“Affected by continued high temperatures in many places, the price of fresh vegetables increased by 12.9% year-on-year, significantly higher than the same period last year,” Mr. Fu said. said at a news conference in Beijing on Monday.

He pointed out that extreme heat has caused drought in some agricultural areas in the south. In the north, rainfall and flooding caused some crops to fail.

“August and September are important times for grain production in the fall. [We must] We should pay close attention to the impact of natural disasters, insects and diseases on our country’s food production,” he added.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *