China has unexpectedly cut rates on policy loans for the first time since April 2020 in the face of lowered economic performance owing to critical power shortages, defaults in the property market, a crackdown on major companies, and repeated COVID-19 outbreaks.
The interest rate on 700 billion yuan ($110.2 billion), one-year, medium-term, lending facility (MLF) loans was reduced by 10 basis points to 2.85 percent by the People’s Bank of China (PBOC) on Monday. By the same margin, the rate on seven-day reverse repurchase agreements, or repos, was reduced to 2.1 percent. Another 100 billion yuan ($15.7 billion) worth of reverse repos were offered into the system while 500 billion yuan ($78 billion) worth of MLF loans were coming due Monday.
“The PBOC’s decision to ease early in January suggested that economic downward pressure intensified at end-2021 and room for improvements in the first quarter of this year is not huge,” Ken Cheung, chief Asian FX strategist at Mizuho Bank, said to the media outlet.
China’s gross domestic product (GDP) grew by 4 percent for the last three months of 2021, based on data from the National Bureau of Statistics. While analysts predicted 3.3 percent, the number was lower than the previous quarter. China’s growth last year amounted to 8.1 percent, higher than the leadership’s target of over 6 percent.
Retail sales growth fell to 1.7 percent last month from 3.9 percent in November. However, demand from the United States and European markets lifted international trade to a record $3.36 trillion in 2021. The jobless rate in China was reportedly 5.1 percent at the end of December.