In China, the central bank lowers its interest rates, now at an all-time low

The context of a sharp economic slowdown exacerbated by a real estate crisis prompted the People’s Bank of China, China’s central bank, to take action. The monetary institution lowered two of its reference interest rates on Monday, August 22, a week after having done the same for several key rates.

the Loan Prime Rate (LPR) to one year, which is the benchmark for the most advantageous rates that banks can offer to companies and households, was reduced from 3.70% to 3.65%, and that to five years, benchmark for mortgages, was lowered from 4.45% to 4.3%, the bank said. Both rates are now at historic lows. The one-year LPR was last lowered in January, the five-year LPR in May.

Read also: Article reserved for our subscribers In China, an unprecedented drought threatens growth

The measure is supposed to encourage banks to grant more loans at more advantageous rates, which should, in turn, support activity. To support its economy, Beijing had already lowered by surprise last Monday several of its key rates: the refinancing rates for banks (REPO) at seven days and at one year.

Disappointing economic indicators

The real estate sector, which had served as the engine of the recovery after the first epidemic wave in 2020, is in pain and many groups are finding themselves short of cash, including the number one in the sector, Evergrande.

The poor financial health of the real estate heavyweight penalizes its competitors, with buyers showing increasing reluctance to invest in real estate. Weakened, some groups are struggling to continue their construction sites and to deliver housing units sold before their construction in due time. A growing number of irate owners therefore refuse to pay their monthly paymentsat the risk of worsening the situation in the sector.

Read also: Article reserved for our subscribers Real estate, a weak link in the Chinese economy

These difficulties come on top of the epidemic rebounds of Covid-19, which lead to confinements, unexpected closures of factories and businesses, and penalize activity.

In July, China thus unveiled disappointing economic indicators, notably seeing its economic growth collapse in the second quarter, up by only 0.4% over one year. This is the worst quarterly performance for its gross domestic product (GDP) since 2020.

The government has set itself the goal this year of increasing “about 5.5%” of its GDP, but many economists doubt that it will be reached.

The World with AFP