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As Economic Growth Slows, China Cuts Interest Rates

As Economic Growth Slows, China Cuts Interest Rates
Source: China US Focus

China has dropped its benchmark interest rate for the first time in over two years, citing official data showing the country’s economic development has slowed.

The National Bureau of Statistics reported that GDP increased by 4% in the last three months of 2021 compared to the same period the previous year.

Although this was better than most analysts had projected, it was still a significant slowdown from the previous quarter.

Retail sales growth for December dipped to 1.7 percent, another symptom of weakening.

China’s GDP expanded by 8.1 percent in the year as a whole, above experts’ predictions and exceeding Beijing’s yearly objective of “around 6 percent.”

Some analysts, however, pointed out that the growth statistics, which was the slowest in a year and a half, did not account for the impact of the recent coronavirus outbreaks.

“The GDP number didn’t include the impact of the domestic spread of the omicron variety since late December,” said Yue Su of the Economist Intelligence Unit, “which will damage the service industry severely, notably offline consumption and transportation.”

The People’s Bank of China (PBOC) announced it was decreasing the interest rate on one-year medium-term lending facility loans totaling 700 billion yuan (£80.6 billion; $110 billion) to 2.85 percent to stimulate the economy. It was the first time such a reduction has been made since April 2020.

The seven-day reverse repurchase rate, another PBOC lending mechanism, was also reduced, while the bank pushed additional 200 billion yuan of medium-term liquidity into the banking sector.

China’s actions set it apart from the world’s other major central banks.

The Federal Reserve of the United States has stated that it intends to raise interest rates three times this year.

In the United Kingdom, the Bank of England hiked interest rates for the first time in more than three years last month, in response to requests to rein in price increases.

Growing fears about the consequences of Beijing’s regulatory assault on enterprises, the financial condition of some of the country’s largest property corporations, and the spread of the Omicron form of Covid-19 have clouded China’s economic picture.