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Chinese bank cuts there interest rate following countries lose on economy steam amid renewed lockdown

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The Chinese Central Bank has been forced to cut the bank interest rates on Monday following the disclosure of data showing the lose on the countries economy steam after reopening of lockdown and property fallout in price.

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The People’s Bank of China reduced the main rate at which it provides short-term liquidity to banks, from 2.1% to 2%. The central bank also cut the rate of its one-year lending facility from 2.85% to 2.75% in order to “maintain reasonable and sufficient liquidity in the banking system,” according to report released

It was the first time since January that those rates had been cut.

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The move took investors by surprise. The central bank had previously appeared reluctant to lower rates further given concerns about the risk of rising debt, consumer inflation and pressure on the yuan, despite the economy stalling  during April and June quarter.

“The PBOC seems to have decided it now has a more pressing problem: the latest data show lacklustre economic momentum in July and a slowdown in credit growth, which has been less responsive to policy easing than during previous economic downturns,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a research note on Monday.

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The market has read China’s rate cuts as “bearish,” wrote ING economists in a note on the same day. Chinese stock markets dropped on Monday, with Hong Kong’s Hang Seng Index (HSI) down 0.7%, and the Shanghai Composite (SHCOMP) slightly lower. The yuan, meanwhile, weakened against the US dollar. Economic data published Monday for July was much worse than expected.

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