{"id":61,"date":"2023-08-14T06:15:08","date_gmt":"2023-08-14T06:15:08","guid":{"rendered":"https:\/\/pakstne.com\/blog\/china-is-cutting-the-rate-by-the-most-since-2020-as-economic-woes-worsen\/"},"modified":"2023-12-24T18:44:38","modified_gmt":"2023-12-24T18:44:38","slug":"china-is-cutting-the-rate-by-the-most-since-2020-as-economic-woes-worsen","status":"publish","type":"post","link":"https:\/\/pakstne.com\/blog\/china-is-cutting-the-rate-by-the-most-since-2020-as-economic-woes-worsen\/","title":{"rendered":"China is cutting the rate by the most since 2020 as economic woes worsen"},"content":{"rendered":"<div>\n<p>(Bloomberg) &#8212; China&#8217;s central bank unexpectedly cut its key interest rate by the most since 2020 to prop up an economy that faces new risks from deteriorating real estate and weak consumer spending.<\/p>\n<p>Most Read from Bloomberg<\/p>\n<p>The People&#8217;s Bank of China cut the interest rate on its one-year loans &#8211; or medium-term lending facility &#8211; by 15 basis points to 2.5% on Tuesday, the second cut since June.  All but one of the 15 analysts surveyed by Bloomberg predicted that the price would remain unchanged.  The short-term interest rate was also cut by 10 basis points.<\/p>\n<p>The surprise move came shortly before the release of disappointing economic activity data for July showing growth in consumer spending, industrial production, investment across the board, and a rebound in unemployment.<\/p>\n<p>The National Bureau of Statistics said that domestic demand remains &#8220;insufficient&#8221; and &#8220;the basis for the economy&#8217;s recovery still needs to be consolidated.&#8221;  China needs to &#8220;step up macroeconomic policy adjustment and focus on expanding domestic demand, raising confidence and preventing risks,&#8221; the NBS said in a statement.<\/p>\n<p>The interest rate cut boosted government bonds and weighed on the exchange rate.  China&#8217;s 10-year yield fell seven basis points to 2.56%, its lowest level since 2020. The local yuan fell for a fourth session on Tuesday, declining 0.23% to 7.2744 per dollar as of 11:32 a.m. in Shanghai.<\/p>\n<p>The PBOC&#8217;s move was the first under new governor Pan Gongsheng, a former deputy at the People&#8217;s Bank of China who was promoted last month after Yi Gang&#8217;s retirement.  There has been a slew of bad economic news since Ban took office, with data last week showing bank loans fell to a 14-year low in July, as the downturn began and exports contracted further.<\/p>\n<p><button class=\"link caas-button collapse-button\" data-ylk=\"elm:readmore;slk:Story continues\">Story continues<\/button><\/p>\n<p>The sudden policy move signals growing concern from policymakers about deteriorating prospects, particularly in the real estate market, where another major real estate developer is now facing a debt crisis and home sales continue to decline.  Risks also spread to the financial sector, as one of the subsidiaries of a major financial group, which was exposed to the real estate sector, defaulted on payments on some investment products.<\/p>\n<p>China&#8217;s economic problems are spreading to the rest of the world and worrying global policymakers.  US Treasury Secretary Janet Yellen said the Chinese slowdown was a &#8220;risk factor&#8221; for the US economy, though the impact would be greater for Asian neighbors.  President Joe Biden told a fundraiser last week that China&#8217;s economic problems were a &#8220;time bomb&#8221; for the country.<\/p>\n<p>Beijing has faced more calls to add monetary and fiscal stimulus to support the economy since the pro-growth tilt by the Communist Party&#8217;s Politburo in July.  One central bank adviser has called for direct consumer support to help boost spending, an approach senior officials have so far been reluctant to take.<\/p>\n<p>What Bloomberg tells the economy&#8230;<\/p>\n<p>Activity data in China shows the economy is rolling into the second half of the year &#8211; an obvious reason for Tuesday&#8217;s unusually fast and large interest rate cut.  The output, investment and consumption readings are all below the level forecasts, showing that the June rate cut did not move the dial.<\/p>\n<p>David Chu and Chang Shu<\/p>\n<p>To view the full report, click here.<\/p>\n<p>The July Politburo emphasized very clearly that China will step up counter-cyclical support measures.  Today&#8217;s decision was the first concrete step in this direction, said Carlos Casanova, chief Asian economist at Union Bancaire Privee.  The People&#8217;s Bank of China (PBOC) is also expected to lower the reserve requirement ratio for banks next time around.<\/p>\n<p>China&#8217;s central bank easing measures will add more pressure on the yuan, which has fallen to its weakest level since November as the economy&#8217;s growth prospects dim.  As the Federal Reserve continues to raise interest rates to tame inflation, the yield gap between Chinese and US 10-year government bonds is now more than 160 basis points, the largest since 2007, fueling capital outflows.<\/p>\n<p>NBS data showed that consumer spending on services, such as dining out, remained strong, while spending on goods, such as clothing, cosmetics, jewelry and home electronics, weakened significantly.<\/p>\n<p>Low prices may also have contributed to the weak consumer goods numbers, said Helen Qiao, chief economist for Greater China at Bank of America.<\/p>\n<p>&#8220;Going back to July, I think consumer services were thriving,&#8221; she said in an interview with Bloomberg Television.  \u201cLook at the box office\u2014record all the time\u2014look at transport and accommodation, that was fine. But maybe consumer product sales weren&#8217;t very good, compounded by the fact that it&#8217;s a nominal chain and your CPI inflation was very low, probably That would have contributed to a very low number.&#8221;<\/p>\n<p>Industrial production may have been affected by heavy rains and severe flooding in some parts of the country last month.  Fixed investment for private companies shrank 0.5% in January-July from a year earlier, a sign of weakening confidence.<\/p>\n<p>Tuesday&#8217;s data &#8220;shows just how difficult it is to sail against the wind, with challenges on almost all dimensions and active policy support from a few fronts,&#8221; said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.<\/p>\n<p>&#8211; With assistance from Paul Dobson, Jing Zhao, Wenjin Love, Jill Desis, James Maiger, Jing Li, and Carrie Lindberg.<\/p>\n<p>(Updates with additional details.)<\/p>\n<p>Most Read from Bloomberg Businessweek<\/p>\n<p>\u00a9 2023 Bloomberg LP<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>(Bloomberg) &#8212; China&#8217;s central bank unexpectedly cut its key interest rate by the most since 2020 to prop up an economy that faces new risks from deteriorating real estate and&#8230; <\/p>\n","protected":false},"author":1,"featured_media":62,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-61","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.7 (Yoast SEO v24.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>China is cutting the rate by the most since 2020 as economic woes worsen<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/pakstne.com\/blog\/china-is-cutting-the-rate-by-the-most-since-2020-as-economic-woes-worsen\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China is cutting the rate 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