China cuts another key interest rate to boost economy

BEIJING

A man walks by a fruits vendor waiting for customers outside a luxury housing construction site in Beijing, Tuesday, Sept. 24, 2024.

China's central bank on Wednesday said it would slash another key interest rate, a day after it unveiled a raft of new measures aimed at boosting its ailing economy.

The medium-term lending facility, the interest for one-year loans to financial institutions, was cut from 2.3 percent to 2.0 percent, the People's Bank of China said in a statement on its website.

The rate was last lowered in July, with Wednesday's cut being the deepest on record.

The world's second-largest economy has yet to achieve a highly anticipated post-pandemic recovery and Beijing has set a goal of 5 percent growth in 2024, an objective analysts say is optimistic given the headwinds it is facing.

On Sept. 24, central bank chief Pan Gongsheng told a news conference in Beijing that the bank would introduce a series of measures to boost growth and pledged to "promote the expansion of consumption and investment."

Among those measures were a reduction in the amount of cash banks must hold in reserve and the lowering of interest rates for existing mortgages.

Beijing said the cut to the reserve requirement ratio, which dictates how much lenders must hold in reserve, would inject around a trillion yuan ($141.7 billion) in long-term liquidity into the financial market.

And the mortgage rate cut would benefit 150 million people across China, Pan said, as well as lower "the average annual household interest bill by about 150 billion yuan."

Minimum down payments for first and second homes would be "unified", with the latter reduced from 25 to 15 percent, Pan said.

Beijing would also create a "swap program" allowing firms to acquire liquidity from the central bank, which Pan said would "significantly enhance" their ability to access funds to buy stocks.

But analysts warned that much greater action would be needed given the headwinds China is facing, particularly in the property sector.

"China's slew of monetary easing measures have done little to stimulate the economy in recent years," China Beige Book's Shehzad Qazi, told AFP. "Rate cuts are no longer enough to boost growth in China," he said.

"Beijing needs a more powerful household stimulus plan, and policymakers again disappointed on that front," he added.

Stephen Innes, managing partner at SPI Asset Management, agreed that a proper stimulus was needed.

"We've seen plenty of property support measures this year, yet they've barely made a dent in the ongoing slump," he wrote in a note.

"The [Chinese central bank's] latest moves are promising, but it feels like we're still waiting for the main event," he said.

"It's almost as if they're trying to extinguish a fire with a flame thrower."

And on the streets of Beijing, some residents said they weren't sure how much the new measures would help.

"I don't think it will make me more optimistic about the economy," Hu Xianyao, managing director at a financial company, told AFP.