South Asia and Beyond

Amid Slowdown, China Cuts Key Borrowing Rate

 Amid Slowdown, China Cuts Key Borrowing Rate

China has slashed its benchmark reference rate for mortgages by an unexpectedly wide margin, its second cut this year. The country’s economy took a hit after the Chinese regime imposed extreme COVID-19 restrictions, causing huge disruptions to economic activity. The five-year loan prime rate (LPR) has been lowered by 15 basis points to 4.45 per cent, the biggest reduction since China revamped the interest rate mechanism in 2019. The one-year LPR was kept unchanged at 3.70 per cent. Many economists expect China’s economy to shrink this quarter from a year earlier, compared with first quarter’s 4.8 per cent growth. COVID-related stringent measures and mobility restrictions have taken a heavy toll on credit lending, industrial output and retail sales. A key drag on growth has been the property sector. Property and related industries such as construction account for more than a quarter of the economy. China’s property sales in April fell at their fastest pace in around 16 years, while new-home prices declined for the first time month-on-month since December, hurt by weak demand amid wide COVID-19 lockdowns.

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