China’s central bank cut a key interest rate but kept another on hold in a move that has confused economists as it attempts to counter the post-Covid slowdown in the world’s second-largest economy.
Activity has been dragged down recently by uncertainty in the labour market and global economic sluggishness, weakening demand for Chinese goods.
Growth has also been hit by financial troubles in the real estate sector, with several leading developers on the verge of bankruptcy and struggling to complete projects.
The People’s Bank of China said today cut the one-year loan prime rate (LPR), which serves as a benchmark for corporate loans, from 3.55pc to 3.45pc.
However, the five-year LPR, which is used to price mortgages, was held at 4.2pc, despite economists predicting the rate to be cut by 15 basis points following a similar reduction last week to an important central bank policy loan rate.
Goldman Sachs economist Maggie Wei described the LPR cut as “disappointing”, adding that it “would not help with building confidence” as Chinese authorities pursue an economic recovery.
Zhang Zhiwei, chief economist at Pinpoint Asset Management, said: “The decision to keep the 5-year unchanged is puzzling.
“It is not clear how to interpret this decision and the cut last week.”
China stocks fell to around nine-month lows as investors were disappointed by the milder-than-expected measures to boost confidence.
Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group, said: “The surprising hold of five-year LPR is inconsistent with the overall policy tone of property bailout.
“The policy message of this LPR hold will confuse the market and dilute the sentiment impact.”
Julian Evans-Pritchard, head of China Economics at Capital Economics, said: “The big picture is that the PBOC’s approach to monetary policy is of limited use in the current environment and won’t be enough, on its own at least, to put a floor beneath growth.”
He added: “But the disappointing follow-through from the MLF cut to the LPR strengthens our view that the PBOC is unlikely to embrace the sizeable declines needed to revive credit demand.”
