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To Boost China Economy, Central Bank Lower Key Interest Rate

Chinese Yuan

Fresh statistics indicated that the second-largest economy in the world was slowing down, so China‘s central bank lowered a key interest rate and poured billions into financial markets on Thursday.

The actions taken by the leaders are the most substantial ones in an effort to revive growth after data in recent months suggested that the anticipated robust comeback following years of Covid lockdown-induced slowing was rapidly losing speed.

China’s initiatives stand in contrast to those of the US and other Western nations, which have been compelled to raise interest rates repeatedly while cutting their money supply to combat inflation. The charge on one-year loans to financial institutions was reduced by officials by 10 basis points to 2.65 percent, according to a statement from the People’s Bank of China.

The medium-term lending facility would provide banks with 237 billion yuan ($33 billion) in funding, according to the PBOC, in order to “maintain reasonable and sufficient liquidity in the banking system”.

The statement comes two days after a sudden reduction in the short-term interest rate was made this week, which observers said indicated that Chinese officials were becoming increasingly concerned about the status of the economy.

The benchmark lending rate for homes, businesses, and mortgages, which is scheduled to be released the next week, is influenced by the MLF rate.

A lower MLF rate lowers the cost of funding for commercial banks, encouraging them to extend more loans and possibly increasing domestic consumption.

Several unimpressive economic indicators over the past few weeks have indicated that the nation’s post-Covid recovery is slowing down.

May saw a second consecutive month of decreased factory activity while inflation increased by just 0.2% year over year.

Figures released on Thursday revealed that young unemployment hit a record high of 20.8 percent in May, another indicator of weakness.

As industries gradually reached full capacity, industrial production growth slowed to 3.5 percent, but retail sales—the primary measure of household consumption—rose 12.7 percent to 18.4 percent in April.

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