The surprise cut shows China’s deep concerns about economic growth and sluggishness in credit demand even as rival central banks raise rates.
The People’s Bank of China unexpectedly cut its one-year policy loans by one tenth of a percentage point to 2.75 per cent on Monday, its first easing since January as it tries to buoy an economy struggling to recover from COVID-19 lockdowns and aA prior survey of 20 economists showed they expected the rate on the medium-term lending facility loans to be left unchanged at 2.85 per cent. The seven-day reverse repo rate, also a policy rate, was cut to 2 per cent from 2.1 per cent.
The rate cut “shows that the Chinese authorities are still deeply concerned about growth and sluggishness in credit demand, while inflation pressure is mild,” said Xiaojia Zhi, an economist at Credit Agricole. The move came shortly before the government’s release of monthly economic data for July, which will likely show a mixed recovery in China: property investment is expected to weaken, the unemployment rate will likely remain high, while industrial output and retail sales probably improved. Fresh COVID-19 outbreaks in Hainan island are also clouding the growth outlook, with cases jumping to a three-month high.