(MENAFN– Asia Times)
China has cut its main lending rates in a strong move to support its economy. The one-year loan prime rate (LPR) dropped by 0.25% to 3.1%, while the five-year LPR, used for mortgages, also fell to 3.6%.
This action comes as China’s economy struggles with slow growth, largely due to problems in the property market and low consumer demand. The rate cuts show that Chinese officials are determined to boost the economy and revive growth.
Investors welcome this move as it should lower borrowing costs, helping businesses and households. However, there’s a belief that more significant government spending, especially to aid households, is needed to achieve the goal of a 5% GDP growth by year-end.
The PBOC’s cuts are expected to increase optimism among global investors who are concerned about China’s economic challenges. Lower rates can encourage spending and investment, benefiting Chinese equities and bonds.
These changes may also help the struggling property market, which is crucial as it constitutes nearly 30% of China’s GDP. A revival here could positively impact global markets.
However, simply lowering rates may not be enough to tackle deeper economic issues. Consumer confidence is low, impacted by ongoing property troubles and deflation concerns. Businesses are cautious in investing due to weak demand, meaning that the benefits from lower rates might not lead to the strong recovery China needs.
To truly drive growth, China should implement bold fiscal measures that directly enhance consumer spending. This could include tax cuts or direct cash transfers to households, improving disposable incomes and encouraging spending.
Combining these fiscal efforts with monetary easing could lead to a more robust and sustainable economic recovery, increasing the chances of reaching the 5% GDP growth target for 2024 and reassuring global markets of China’s ability to manage its economic slowdown.
`
