China cuts interest rates as economy struggles

New Delhi, August 21

China's central bank has cut one of its key interest rates for the second time in three months as the world's second-largest economy struggles to bounce back from the Covid-19 pandemic, a media report said.

The People's Bank of China (PBOC) lowered its one-year loan prime rate to 3.45 per cent from 3.55 per cent, BBC reported.

The country's post-Covid recovery has been hit by a property crisis, falling exports and weak consumer spending, the report said.

In contrast, other major economies have raised rates to tackle high inflation.

The PBOC last cut its one-year rate - on which most of China's household and business loans are based - in June.

Jun Bei Liu from Tribeca Investment Partners said the move is unlikely to have a major impact, but does indicate the Chinese government's commitment to reviving the economy, BBC reported.

"We will need bigger stimulus package to boost confidence and in turn drive up consumption and growth. Without it, the economy is risking faltering into deflation which will be harder to revive," she said.

Economists had also expected the central bank to lower its five-year loan prime rate, which the country's mortgages are pegged to. However, it was unchanged at 4.2 per cent.

In a surprise move last week, short and medium-term rates were also cut.

"More rate cuts could be announced in conjunction with government spending, as well as targeted measures to help the property market," said Catherine Yeung, investment director at Fidelity International, BBC reported.