(MENAFN – Asia Times)
China has cut its key lending rates, a strong move by the People’s Bank of China (PBOC) aimed at boosting the economy. The one-year loan prime rate (LPR) dropped by 0.25% to 3.1%, while the five-year LPR, significant for mortgages, also fell to 3.6%.
This comes as global investors look for positive signals amid China’s sluggish growth, caused by property market struggles, deflation, and low consumer demand. These rate cuts show urgency from Chinese policymakers to revive growth, which has been stagnant for months.
Lower rates should help businesses and households by making borrowing cheaper, potentially reviving economic momentum. However, experts believe effective fiscal policies targeting households are essential to reach the government’s GDP growth target of 5% by year-end.
The cuts are expected to improve investor sentiment globally, as lower borrowing costs can lead to increased consumer spending and investment in key sectors. Stabilizing the property market, a critical part of China’s economy, is also a major focus, as it greatly affects overall growth.
Nonetheless, challenges remain. Consumer confidence is low due to ongoing property issues and deflation worries. Simply lowering interest rates won’t fully address these deeper problems. People are reluctant to spend and invest, suggesting that monetary policy alone isn’t enough.
China needs strong fiscal measures to stimulate demand directly. Implementing tax cuts, subsidies, or cash transfers could increase household income, encouraging spending and supporting the struggling property sector.
By combining fiscal stimulus with monetary easing, China could foster a more robust and sustainable recovery, enhancing its chances of achieving its GDP targets and reassuring global markets of its resilience.
Nigel Green is the founder and CEO of deVere Group.
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