(MENAFN– Asia Times) China’s recent cut in key lending rates signals a strong intervention by the People’s Bank of China (PBOC).
The one-year loan prime rate (LPR) was lowered by 0.25% to 3.1%, and the five-year LPR, used for mortgages, dropped to 3.6%.
This move comes at a critical time, as China’s economy faces slow growth due to property market issues and low consumer demand. The rate cuts show a renewed urgency from Chinese policymakers to boost the economy.
For investors, lower borrowing costs should support businesses and households, potentially reviving economic activity. However, many believe stronger fiscal measures targeting households are essential for achieving the 5% GDP growth goal by year-end.
The PBOC’s actions are expected to raise global investor confidence amid concerns over China’s economic troubles. Lower rates might stimulate consumer spending and investment, benefiting the struggling property sector, which is vital for the economy.
While this monetary easing is promising, it cannot resolve deeper structural challenges. Consumer confidence remains low due to the property slump, and businesses are reluctant to invest without strong demand. For real recovery, China needs targeted fiscal policies that put cash in consumers’ hands.
A robust fiscal package—through tax cuts, subsidies, or cash transfers—could rejuvenate demand and help households cope with rising living costs, ultimately supporting spending in areas like housing.
By combining these efforts with monetary easing, China can improve its chances of achieving its 5% growth target for 2024 and reassure global markets about its economic recovery capability.
Nigel Green, CEO of deVere Group.
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